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Gross Substitute Valuation
The term gross substitutes is used in two slightly different meanings: # In microeconomics, two commodities X and Y are called gross substitutes, if \frac > 0. I.e., an increase in the price of one commodity causes people to want ''strictly more'' of the other commodity, since the commodities can substitute each other (bus and taxi are a common example). # In auction theory and competitive equilibrium theory, a valuation function is said to have the ''gross substitutes'' (GS) property if for all pairs of commodities: \frac\geq 0. I.e., the definition includes both substitute good In microeconomics, two goods are substitutes if the products could be used for the same purpose by the consumers. That is, a consumer perceives both goods as similar or comparable, so that having more of one good causes the consumer to desire less ...s and independent goods, and only rules out complementary goods. See Gross substitutes (indivisible items). References {{Econ-term-stub Utility f ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Microeconomics
Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the study of individual markets, sectors, or industries as opposed to the national economy as whole, which is studied in macroeconomics. One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations. It also analyzes market failure, where markets fail to produce efficient results. While microeconomics focuses on firms and individuals, macroeconomics focuses on the sum total of economic activity, dealing with the issues of growth, inflation, and unemployment and with national policies relating to these issues. Microeconomics also d ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Substitute Good
In microeconomics, two goods are substitutes if the products could be used for the same purpose by the consumers. That is, a consumer perceives both goods as similar or comparable, so that having more of one good causes the consumer to desire less of the other good. Contrary to complementary goods and independent goods, substitute goods may replace each other in use due to changing economic conditions. An example of substitute goods is Coca-Cola and Pepsi; the interchangeable aspect of these goods is due to the similarity of the purpose they serve, i.e fulfilling customers' desire for a soft drink. These types of substitutes can be referred to as close substitutes. Definition Economic theory describes two goods as being close substitutes if three conditions hold: # products have the same or similar performance characteristics # products have the same or similar occasion for use and # products are sold in the same geographic area Performance characteristics describe what the pro ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Auction Theory
Auction theory is an applied branch of economics which deals with how bidders act in auction markets and researches how the features of auction markets incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost. The conference of the price between the buyer and seller is an economic equilibrium. Auction theorists design rules for auctions to address issues which can lead to market failure. The design of these rulesets encourages optimal bidding strategies among a variety of informational settings. The 2020 Nobel Prize for Economics was awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats.” Introduction Auctions facilitate transactions by enforcing a specific set of rules regarding the resource allocations of a group of bidders. Theorists consider auctions t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Competitive Equilibrium
Competitive equilibrium (also called: Walrasian equilibrium) is a concept of economic equilibrium introduced by Kenneth Arrow and Gérard Debreu in 1951 appropriate for the analysis of commodity markets with flexible prices and many traders, and serving as the benchmark of efficiency in economic analysis. It relies crucially on the assumption of a competitive environment where each trader decides upon a quantity that is so small compared to the total quantity traded in the market that their individual transactions have no influence on the prices. Competitive markets are an ideal standard by which other market structures are evaluated. Definitions A competitive equilibrium (CE) consists of two elements: * A price function P. It takes as argument a vector representing a bundle of commodities, and returns a positive real number that represents its price. Usually the price function is linear - it is represented as a vector of prices, a price for each commodity type. * An allocation ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Substitute Good
In microeconomics, two goods are substitutes if the products could be used for the same purpose by the consumers. That is, a consumer perceives both goods as similar or comparable, so that having more of one good causes the consumer to desire less of the other good. Contrary to complementary goods and independent goods, substitute goods may replace each other in use due to changing economic conditions. An example of substitute goods is Coca-Cola and Pepsi; the interchangeable aspect of these goods is due to the similarity of the purpose they serve, i.e fulfilling customers' desire for a soft drink. These types of substitutes can be referred to as close substitutes. Definition Economic theory describes two goods as being close substitutes if three conditions hold: # products have the same or similar performance characteristics # products have the same or similar occasion for use and # products are sold in the same geographic area Performance characteristics describe what the pro ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Independent Goods
Independent goods are goods that have a zero cross elasticity of demand. Changes in the price of one good will have no effect on the demand for an independent good. Thus independent goods are neither complements nor substitutes. For example, a person's demand for nails is usually independent of his or her demand for bread, since they are two unrelated types of goods. Note that this concept is subjective and depends on the consumer's personal utility function. A Cobb-Douglas utility function implies that goods are independent. For goods in quantities ''X''1 and ''X''2, prices ''p''1 and ''p''2, income ''m'', and utility function parameter ''a'', the utility function : u(X_1, X_2) = X_1^a X_2^, when optimized subject to the budget constraint that expenditure on the two goods cannot exceed income, gives rise to this demand function for good 1: X_1= am/p_1, which does not depend on ''p''2. See also * Consumer theory * Good (economics and accounting) In economics, goods are i ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Complementary Goods
In economics, a complementary good is a good whose appeal increases with the popularity of its complement. Technically, it displays a negative cross elasticity of demand and that demand for it increases when the price of another good decreases. If A is a complement to B, an increase in the price of A will result in a negative movement along the demand curve of A and cause the demand curve for B to shift inward; less of each good will be demanded. Conversely, a decrease in the price of A will result in a positive movement along the demand curve of A and cause the demand curve of B to shift outward; more of each good will be demanded. This is in contrast to a substitute good, whose demand decreases when its substitute's price decreases. When two goods are complements, they experience ''joint demand'' - the demand of one good is linked to the demand for another good. Therefore, if a higher quantity is demanded of one good, a higher quantity will also be demanded of the other, and '' ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Gross Substitutes (indivisible Items)
In economics, gross substitutes (GS) is a class of utility functions on indivisible goods. An agent is said to ''have a GS valuation'' if, whenever the prices of some items increase and the prices of other items remain constant, the agent's demand for the items whose price remain constant weakly increases. An example is shown on the right. The table shows the valuations (in dollars) of Alice and Bob to the four possible subsets of the set of two items: . Alice's valuation is GS, but Bob's valuation is not GS. To see this, suppose that initially both apple and bread are priced at $6. Bob's optimal bundle is apple+bread, since it gives him a net value of $3. Now, the price of bread increases to $10. Now, Bob's optimal bundle is the empty bundle, since all other bundles give him negative net value. So Bob's demand to apple has decreased, although only the price of bread has increased. The GS condition was introduced by Kelso and Crawford in 1982 and was greatly publicized by Gul a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
