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Marginal Rate Of Substitution
In economics, the marginal rate of substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical. The marginal rate of substitution is one of the three factors from marginal productivity, the others being marginal rates of transformation and marginal productivity of a factor. As the slope of indifference curve Under the standard assumption of neoclassical economics that goods and services are continuously divisible, the marginal rates of substitution will be the same regardless of the direction of exchange, and will correspond to the slope of an indifference curve (more precisely, to the slope multiplied by −1) passing through the consumption bundle in question, at that point: mathematically, it is the implicit derivative. MRS of X for Y is the amount of Y which a consumer c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Utility
In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a normative context, utility refers to a goal or objective that we wish to maximize, i.e., an objective function. This kind of utility bears a closer resemblance to the original utilitarian concept, developed by moral philosophers such as Jeremy Bentham and John Stuart Mill. * In a descriptive context, the term refers to an ''apparent'' objective function; such a function is revealed by a person's behavior, and specifically by their preferences over lotteries, which can be any quantified choice. The relationship between these two kinds of utility functions has been a source of controversy among both economists and ethicists, with most maintaining that the two are distinct but generally related. Utility function Consider a set of alternatives among which a person has a preference ordering. A utility fu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Budget Constraint
In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within their given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices . Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. The equation of a budget constraint is P_x x+P_y y=m where P_x is the price of good , and P_y is the price of good , and is income. Soft budget constraint The concept of soft budget constraint is commonly applied to centrally planned economies, later economies in transition. This theory was originally proposed by János Kornai in 1979. It was used to explain the "economic behavior in socialist economies marked by shortage”. In the socialist transition economy there are soft budget constraint o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Implicit Differentiation
In mathematics, an implicit equation is a relation of the form R(x_1, \dots, x_n) = 0, where is a function of several variables (often a polynomial). For example, the implicit equation of the unit circle is x^2 + y^2 - 1 = 0. An implicit function is a function that is defined by an implicit equation, that relates one of the variables, considered as the value of the function, with the others considered as the arguments. For example, the equation x^2 + y^2 - 1 = 0 of the unit circle defines as an implicit function of if , and is restricted to nonnegative values. The implicit function theorem provides conditions under which some kinds of implicit equations define implicit functions, namely those that are obtained by equating to zero multivariable functions that are continuously differentiable. Examples Inverse functions A common type of implicit function is an inverse function. Not all functions have a unique inverse function. If is a function of that has a unique inve ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Convex Preferences
In economics, convex preferences are an individual's ordering of various outcomes, typically with regard to the amounts of various goods consumed, with the property that, roughly speaking, "averages are better than the extremes". This implies that the consumer prefers a variety of goods to having more of a single good. The concept roughly corresponds to the concept of marginal utility#Diminishing marginal utility, diminishing marginal utility without requiring utility functions. Notation Comparable to the greater-than-or-equal-to Order theory#Partially ordered sets, ordering relation \geq for real numbers, the notation \succeq below can be translated as: 'is at least as good as' (in Preference (economics), preference satisfaction). Similarly, \succ can be translated as 'is strictly better than' (in preference satisfaction), and Similarly, \sim can be translated as 'is equivalent to' (in preference satisfaction). Definition Use ''x'', ''y'', and ''z'' to denote three consumpti ... [...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 include: 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 determined by the individual. Their specific tastes or preferences determine the amount of utility they derive from goods and services they consume. In the second case, a producer has different motives to the consumer in that they are focussed on the profit they make. This is explained further by producer theory. The models ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Indifference Curves
In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is ''indifferent''. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come. The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles. Indifference curve analysis is a purely technolog ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Rate Of Technical Substitution
In microeconomic theory, the marginal rate of technical substitution (MRTS)—or technical rate of substitution (TRS)—is the amount by which the quantity of one input has to be reduced (-\Delta x_2) when one extra unit of another input is used (\Delta x_1 = 1), so that output remains constant (y = \bar). MRTS(x_1,x_2) =-\frac = \frac where MP_1 and MP_2 are the marginal products of input 1 and input 2, respectively. Along an isoquant, the MRTS shows the rate at which one input (e.g. capital or labor) may be substituted for another, while maintaining the same level of output. Thus the MRTS is the absolute value of the slope of an isoquant at the point in question. When relative input usages are optimal, the marginal rate of technical substitution is equal to the relative unit costs of the inputs, and the slope of the isoquant at the chosen point equals the slope of the isocost curve (see conditional factor demands). It is the rate at which one input is substituted for anoth ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Concepts
In economics, marginal concepts are associated with a ''specific change'' in the quantity used of a good or service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity thereof.{{citation needed, date=February 2012 Marginality Constraints are conceptualized as a ''border'' or ''margin''. Wicksteed, Philip Henry; ''The Common Sense of Political Economy'' (1910), Bk I Ch 2 and elsewhere. The location of the margin for any individual corresponds to his or her ''endowment'', broadly conceived to include opportunities. This endowment is determined by many things including physical laws (which constrain how forms of energy and matter may be transformed), accidents of nature (which determine the presence of natural resources), and the outcomes of past decisions made both by others and by the individual himself or herself. A value that holds true given particular constraints is a ''marginal'' value. A change that would ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Total Differential
In calculus, the differential represents the principal part of the change in a function y = f(x) with respect to changes in the independent variable. The differential dy is defined by dy = f'(x)\,dx, where f'(x) is the derivative of with respect to x, and dx is an additional real variable (so that dy is a function of x and dx). The notation is such that the equation dy = \frac\, dx holds, where the derivative is represented in the Leibniz notation dy/dx, and this is consistent with regarding the derivative as the quotient of the differentials. One also writes df(x) = f'(x)\,dx. The precise meaning of the variables dy and dx depends on the context of the application and the required level of mathematical rigor. The domain of these variables may take on a particular geometrical significance if the differential is regarded as a particular differential form, or analytical significance if the differential is regarded as a linear approximation to the increment of a function. ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Neoclassical Economics
Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good or service is determined through a hypothetical maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production. This approach has often been justified by appealing to rational choice theory. Neoclassical economics is the dominant approach to microeconomics and, together with Keynesian economics, formed the neoclassical synthesis which dominated mainstream economics as "neo-Keynesian economics" from the 1950s onward. Classification The term was originally introduced by Thorstein Veblen in his 1900 article "Preconceptions of Economic Science", in which he related marginalists in the tradition of Alfred Marshall ''et al.'' to ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Partial Differentiation
In mathematics, a partial derivative of a function of several variables is its derivative with respect to one of those variables, with the others held constant (as opposed to the total derivative, in which all variables are allowed to vary). Partial derivatives are used in vector calculus and differential geometry. The partial derivative of a function f(x, y, \dots) with respect to the variable x is variously denoted by It can be thought of as the rate of change of the function in the x-direction. Sometimes, for the partial derivative of z with respect to x is denoted as \tfrac. Since a partial derivative generally has the same arguments as the original function, its functional dependence is sometimes explicitly signified by the notation, such as in: f'_x(x, y, \ldots), \frac (x, y, \ldots). The symbol used to denote partial derivatives is ∂. One of the first known uses of this symbol in mathematics is by Marquis de Condorcet from 1770, who used it for partial difference ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Utility Function
In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a Normative economics, normative context, utility refers to a goal or objective that we wish to maximize, i.e., an objective function. This kind of utility bears a closer resemblance to the original Utilitarianism, utilitarian concept, developed by moral philosophers such as Jeremy Bentham and John Stuart Mill. * In a Positive economics, descriptive context, the term refers to an ''apparent'' objective function; such a function is Revealed preference, revealed by a person's behavior, and specifically by their preferences over Lottery (decision theory), lotteries, which can be any quantified choice. The relationship between these two kinds of utility functions has been a source of controversy among both Economics, economists and Ethics, ethicists, with most maintaining that the two are distinct but generally re ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
