|
Gorman Polar Form
Gorman polar form is a functional form for indirect utility functions in economics. Motivation Standard consumer theory is developed for a single consumer. The consumer has a utility function, from which his demand curves can be calculated. Then, it is possible to predict the behavior of the consumer in certain conditions, price or income changes. But in reality, there are many different consumers, each with his own utility function and demand curve. How can we use consumer theory to predict the behavior of an entire society? One option is to represent an entire society as a single "mega consumer", which has an aggregate utility function and aggregate demand curve. But in what cases is it indeed possible to represent an entire society as a single consumer? Formally: consider an economy with n consumers, each of whom has a demand function that depends on his income m^i and the price system: :x^i(p,m^i) The aggregate demand of society is, in general, a function of the price system ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Indirect Utility Function
__NOTOC__ In economics, a consumer's indirect utility function v(p, w) gives the consumer's maximal attainable utility when faced with a vector p of goods prices and an amount of income w. It reflects both the consumer's preferences and market conditions. This function is called indirect because consumers usually think about their preferences in terms of what they consume rather than prices. A consumer's indirect utility v(p, w) can be computed from his or her utility function u(x), defined over vectors x of quantities of consumable goods, by first computing the most preferred affordable bundle, represented by the vector x(p, w) by solving the utility maximization problem, and second, computing the utility u(x(p, w)) the consumer derives from that bundle. The resulting indirect utility function is :v(p,w)=u(x(p,w)). The indirect utility function is: *Continuous on R''n''+ × R+ where ''n'' is the number of goods; *Decreasing in prices; *Strictly increasing in income; *Homogenou ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interactions of Agent (economics), economic agents and how economy, economies work. Microeconomics analyzes what's viewed as basic elements in the economy, including individual agents and market (economics), markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the economy as a system where production, consumption, saving, and investment interact, and factors affecting it: employment of the resources of labour, capital, and land, currency inflation, economic growth, and public policies that have impact on glossary of economics, these elements. Other broad distinctions within economics include those between positive economics, desc ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Consumer Theory
The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption as measured by their preferences subject to limitations on their expenditures, by maximizing utility subject to a consumer budget constraint. Factors influencing consumers' evaluation of the utility of goods: income level, cultural factors, product information and physio-psychological factors. Consumption is separated from production, logically, because two different economic agents are involved. In the first case consumption is by the primary individual, individual tastes or preferences determine the amount of pleasure people derive from the goods and services they consume.; in the second case, a producer might make something that he would not consume himself. Therefore, different motivations and abilities are involved. The models that make up consumer theory ar ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Demand Function
In economics, a demand curve is a graph depicting the relationship between the price of a certain commodity (the ''y''-axis) and the quantity of that commodity that is demanded at that price (the ''x''-axis). Demand curves can be used either for the price-quantity relationship for an individual consumer (an individual demand curve), or for all consumers in a particular market (a market demand curve). It is generally assumed that demand curves slope down, as shown in the adjacent image. This is because of the law of demand: for most goods, the quantity demanded falls if the price rises. Certain unusual situations do not follow this law. These include Veblen goods, Giffen goods, and speculative bubbles where buyers are attracted to a commodity if its price rises. Demand curves are used to estimate behaviour in competitive markets and are often combined with supply curves to find the equilibrium price (the price at which sellers together are willing to sell the same amount as buy ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Engel Curve
In microeconomics, an Engel curve describes how household expenditure on a particular good or service varies with household income. There are two varieties of Engel curves. Budget share Engel curves describe how the proportion of household income spent on a good varies with income. Alternatively, Engel curves can also describe how real expenditure varies with household income. They are named after the German statistician Ernst Engel (1821–1896), who was the first to investigate this relationship between goods expenditure and income systematically in 1857. The best-known single result from the article is Engel's law which states that as income grows, spending on food becomes a smaller share of income; therefore, the share of a household's or country's income spent on food is an indication of their affluence. Shape Graphically, the Engel curve is represented in the first quadrant of the Cartesian coordinate system. Income is shown on the horizontal axis and the quantity demanded fo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Expenditure Function
In microeconomics, the expenditure function gives the minimum amount of money an individual needs to spend to achieve some level of utility, given a utility function and the prices of the available goods. Formally, if there is a utility function u that describes preferences over ''n '' commodities, the expenditure function :e(p, u^*) : \textbf R^n_+ \times \textbf R \rightarrow \textbf R says what amount of money is needed to achieve a utility u^* if the ''n'' prices are given by the price vector p. This function is defined by :e(p, u^*) = \min_ p \cdot x where :\geq(u^*) = \ is the set of all bundles that give utility at least as good as u^*. Expressed equivalently, the individual minimizes expenditure x_1p_1+\dots +x_n p_n subject to the minimal utility constraint that u(x_1, \dots , x_n) \ge u^*, giving optimal quantities to consume of the various goods as x_1^*, \dots x_n^* as function of u^* and the prices; then the expenditure function is :e(p_1, \dots , p_n ; u^*)=p ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Homogeneous Function
In mathematics, a homogeneous function is a function of several variables such that, if all its arguments are multiplied by a scalar, then its value is multiplied by some power of this scalar, called the degree of homogeneity, or simply the ''degree''; that is, if is an integer, a function of variables is homogeneous of degree if :f(sx_1,\ldots, sx_n)=s^k f(x_1,\ldots, x_n) for every x_1, \ldots, x_n, and s\ne 0. For example, a homogeneous polynomial of degree defines a homogeneous function of degree . The above definition extends to functions whose domain and codomain are vector spaces over a field : a function f : V \to W between two -vector spaces is ''homogeneous'' of degree k if for all nonzero s \in F and v \in V. This definition is often further generalized to functions whose domain is not , but a cone in , that is, a subset of such that \mathbf\in C implies s\mathbf\in C for every nonzero scalar . In the case of functions of several real variables and real vecto ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Quasilinear Utilities
In economics and consumer theory, quasilinear utility functions are linear in one argument, generally the numeraire. Quasilinear preferences can be represented by the utility function u(x_1, x_2, \ldots, x_n) = x_1 + \theta (x_2, \ldots, x_n) where \theta is strictly concave. A useful property of the quasilinear utility function is that the Marshallian/Walrasian demand for x_2, \ldots, x_n does not depend on wealth and is thus not subject to a wealth effect; The absence of a wealth effect simplifies analysis and makes quasilinear utility functions a common choice for modelling. Furthermore, when utility is quasilinear, compensating variation (CV), equivalent variation (EV), and consumer surplus are algebraically equivalent. In mechanism design, quasilinear utility ensures that agents can compensate each other with side payments. Definition in terms of preferences A preference relation \succsim is quasilinear with respect to commodity 1 (called, in this case, the ''numeraire'' ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Homothetic Preferences
In consumer theory, a consumer's preferences are called homothetic if they can be represented by a utility function which is homogeneous of degree 1. For example, in an economy with two goods x,y, homothetic preferences can be represented by a utility function u that has the following property: for every a>0: ::u(a\cdot x,a\cdot y) = a\cdot u(x,y) In mathematics, a homothetic function is a monotonic transformation of a function which is homogeneous; however, since ordinal utility functions are only defined up to an increasing monotonic transformation, there is a small distinction between the two concepts in consumer theory. In a model where competitive consumers optimize homothetic utility functions subject to a budget constraint, the ratios of goods demanded by consumers will depend only on relative prices, not on income or scale. This translates to a linear expansion path in income: the slope of indifference curves is constant along rays beginning at the origin. This is to sa ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Linear
Linearity is the property of a mathematical relationship (''function'') that can be graphically represented as a straight line. Linearity is closely related to '' proportionality''. Examples in physics include rectilinear motion, the linear relationship of voltage and current in an electrical conductor (Ohm's law), and the relationship of mass and weight. By contrast, more complicated relationships are ''nonlinear''. Generalized for functions in more than one dimension, linearity means the property of a function of being compatible with addition and scaling, also known as the superposition principle. The word linear comes from Latin ''linearis'', "pertaining to or resembling a line". In mathematics In mathematics, a linear map or linear function ''f''(''x'') is a function that satisfies the two properties: * Additivity: . * Homogeneity of degree 1: for all α. These properties are known as the superposition principle. In this definition, ''x'' is not necessarily a real ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Roy's Identity
Roy's identity (named after French economist René Roy) is a major result in microeconomics having applications in consumer choice and the theory of the firm. The lemma relates the ordinary (Marshallian) demand function to the derivatives of the indirect utility function. Specifically, denoting the indirect utility function as v(p,w), the Marshallian demand function for good i can be calculated as :x_^(p,w)=-\frac where p is the price vector of goods and w is income. Derivation of Roy's identity Roy's identity reformulates Shephard's lemma in order to get a Marshallian demand function for an individual and a good (i) from some indirect utility function. The first step is to consider the trivial identity obtained by substituting the expenditure function for wealth or income w in the indirect utility function v (p, w), at a utility of u: :v ( p, e(p, u)) = u This says that the indirect utility function evaluated in such a way that minimizes the cost for achieving a certain ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marshallian Demand Function
In microeconomics, a consumer's Marshallian demand function (named after Alfred Marshall) is the quantity they demand of a particular good as a function of its price, their income, and the prices of other goods, a more technical exposition of the standard demand function. It is a solution to the utility maximization problem of how the consumer can maximize their utility for given income and prices. A synonymous term is uncompensated demand function, because when the price rises the consumer is not compensated with higher nominal income for the fall in their real income, unlike in the Hicksian demand function. Thus the change in quantity demanded is a combination of a substitution effect and a wealth effect. Although Marshallian demand is in the context of partial equilibrium theory, it is sometimes called Walrasian demand as used in general equilibrium theory (named after Léon Walras). According to the utility maximization problem, there are ''L'' commodities with price vector '' ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
