Talk:Consumer theory

From Wikipedia, the free encyclopedia

 This article is within the scope of the Economics WikiProject, an effort to create, expand, organize, and improve economics-related articles..
B rated as B-Class on the assessment scale
High rated as high-importance on the importance scale

On Consumer_theory and Giffen_good pages are diagrams I can't call up because the A-tags intended to create links that display the images, enclose nothing! Not even one byte of whitespace that would result in a clickable spot. I have no clue how this problem can be repaired in the Wiki world -- in fact, I have no clue how to bring this comment itself to the attention of persons able to respond effectively. Meanwhile, the articles are far less informative without their diagrams.

Not sure what you mean. Maybe you could post a screenshot of what you're seeing or something? —Caesura 06:59, 14 Mar 2005 (UTC)

I think this page should be fleshed out and contain the articles "indifference curves" and "utility maximization problem." It should also redirect so that you come here when you search for "the theory of consumer choice."

[edit] Math notation conventions

It says that

X \times px + Y \times py \leq \mathrm{income}.\,

I wonder if it should say something like

xp_x + yp_y \leq \mathrm{income},\,

or perhaps

xp_\mathrm{X} + yp_\mathrm{Y} \leq \mathrm{income},\,

The latter seems consistent with later usage in the article: one refers to "good X" and "good Y" with unitalicized capital letters, and lets x and y with italicized lower-case letters be the corresponding amounts of those goods. Michael Hardy 22:22, 18 May 2006 (UTC)

Either of the latter ways look fine to me. Which ever is choosen should probably have the terms defined (like where x is the amount of good X) Jrincayc 01:52, 19 May 2006 (UTC)

I'm surprised anyone could say that either looks fine. I'd have thought if one is good, the other is an abomination. Michael Hardy 02:39, 19 May 2006 (UTC)

... oh ... you said either of the latter ways. OK. Michael Hardy 23:06, 19 May 2006 (UTC)

Michael Hardy, it really should be (and i think you will understand when you see it):

\langle p, X \rangle \leq w .

where w is the wealth of the person, p is the price vector, and X is vector of quantities of goods purchased. I think the crosses are supposed to be inner products, but they are being applied to scalars in the case, so the latter notation is probably best. Pdbailey (talk) 00:49, 7 March 2008 (UTC)

[edit] Labor-Leisure

I added a blurb about the labor-leisure model. I wish to add an image or too, but do not know the format of the previous graphics. I hope to add a few examples of how a welfare benefits guarantee can change things and how wage taxes change the budget constraint. --Vince 16:30, 29 March 2007 (UTC)

I believe Labor-leisure should have its own page. Even in economics, this topic is handled in labor economics rather than directly by microeconomics courses, despite using the same model. What the Consumer theory page should do is to concentrate on its main topic. A layman may get confused if the labor-leisure topic is included here while in fact, it is merely an application of the model rather than the main point of the model. __earth (Talk) 03:58, 28 April 2008 (UTC)


I agree. This topic has comes up in real business cycle models in macro economics when analyzing a productivity shock. It ended up creating quite a bit of discussion which revealed how poorly we understood this topic.

Hawk8103 (talk) 19:47, 13 May 2008 (UTC)

[edit] substitution effect / Disputed flag

the figure in the section titled, "Price effect as sum of substitution and income effects" suggests that the budget constraint used to determine the substitution effect does not go through the original y value, this disagrees with Varian and other sources I found via google. Is there an argument for keeping it that way? Pdbailey (talk) 00:41, 7 March 2008 (UTC)

Specifically, see equation 2.F.10 on page 34 of Mas Colell, Winsoton, and Green and the following text. Or the footnote on page 72 (same book) which clearly talk about how the decomposition is not the way it is drawn in the figure on the page. Pdbailey (talk) 00:56, 7 March 2008 (UTC)

I added a disputed flag to the top of the article because this is a critical error (what the substitution and income effect decomposition is) that I think the casual reader should know that there is a disagreement. Pdbailey (talk) 15:16, 8 March 2008 (UTC)

I checked Landsburg pg 102 ISBN 0-538-88206-9, Hirshleifer pg 119 ISBN 0-13-190778-6, and Silberberg and Suen pg 277 ISBN 0-07-234352-4 and the substitution effect boundary constraint does not go through the original y value. In general (you can come up with an indifference curve where this is not the case) if the consumer is to maintain the same level of utility (i.e. be on the same indifference curve), when the relative price changes they will change their amount consumption of each good. Can you be more specific as to what Varian says? Jrincayc (talk) 15:25, 9 March 2008 (UTC)
Mas-Colell, Winston, and Green ISBN 0-19-507340-1 (p 72, in the footnote) notes, "Instead of varying wealth to keep utility fixed, as we do here [in the Slutsky matrix], Slutsky compensation adjust wealth so that the initial consumption bundle x is just affordable at the new prices." Where my bracket term only adds to the text what the context of the footnote is. The same book uses similar terminology when introducing the substitution effect in section 2.F.
In Varian's Intermediate Microeconomics, ISBN 0393978303, draws many figures and states that the pivoted budget line includes the original point. On page 138 he describes the substitution effect budget line by saying , "Since the original consumption bundle (x1,x2) lies on the the pivoted budget line [...]." when describing the general case (i.e. not one of the special cases I can imagine where the distinction doesn't matter).
Mas-Colell, Winston, and Green's above cited book is the dominant Ph.D. level microeconomic theory book with Varian's advanced book being the other, so I thought I had covered my bases by checking a book by each of them. I think it is possible that there are two Slutsky equations, one describes the method of going between the Marshallian or Walrasian and Hicksian demand and this (as MWG pointed out above) is not what is used for calculating the substitution and wealth effects. The other one is used only for calculating the substitution and wealth effects, and is compensated not in the SARP sense, but in the WARP sense, so that the original quantities are again in the budget set to allow the weaker axiom of revealed preferences. But maybe you can quote from the books you cite and it will be clear that there is a disagreement among the published books. I honestly don't know what happens then. Pdbailey (talk) 16:57, 9 March 2008 (UTC)
Silberberg and Suen mentions the Slutsky equation later in the book, so I think that book mentions both methods. I haven't had the time to really look at the difference. It seems to me there are two ways to do it, and the article should mention both and include a brief comparison. For most utility curves if you change the budget to include the original bundle, the consumer can actually increase their utility by moving to a different bundle, so the two methods are getting at somewhat different concepts. Jrincayc (talk) 12:39, 10 March 2008 (UTC)
Of the books you listed, even a well stocked economics library (i.e. the University of Chicago's) only has Hirshleifer. I think it would be very difficult for many to get a hand on any of these and I'm not sure they are in the main stream. In addition, there is exactly one review of Hirsleifer, and it is listed as an undergraduate text. Can you at least post text from Hirsleifer that supports your claim that this is how you calculate the substitution effect? Pdbailey (talk) 17:44, 10 March 2008 (UTC)
"Slutsky Versus Hicks Compensations" From Silberberg and Suen pg 304: "Slutsky compensated the consumer in a slightly different form: After a price change, instead of Adjusting M to return the consumer to the original indifference curve, Slutsky gave the consumer enough income to purchase the original bundle of goods. This is in fact more than M*(p_1,...,p_n,U0), the minimum M to return the consumer to the original utility level." S&S pg 276: "The interest in this model stems from the analysis of E. Slutsky in 1915, and exanded by John R. Hicks in 1937, in which the response to a change in prices was conceptually partitioned into two separate effects; a pure substitution effect, in which "real income" (utility in Hicks' formation) is held constant, and a pure income effect, in which prices are held fixed, and the budget line shifts parallel to itself to the final maximum utility level." Jrincayc (talk) 04:07, 11 March 2008 (UTC)
I agree with you, there are two substitution effects. While I think that the Slutsky is more commonly used an more of what people think of when they talk about the "substitution effect", your proposal (a few posts ago) to have both should is probably the most sensical because both are out there and a reader might be wondering about the other one if we have just one or the other. Pdbailey (talk) 22:15, 11 March 2008 (UTC)
Do you want to add the other substitution effect to the article? Jrincayc (talk) 13:28, 16 March 2008 (UTC)
Sure, any chance you can make a figure so they all look alike? Pdbailey (talk) 03:55, 19 March 2008 (UTC)
I can, but it may be awhile until I get to it (i.e. in mid May when I finish with classes, or it may be in a few days.). I uploaded all the images on this page as svg, so you can now edit them in Inkscape, which might be a faster than waiting for me. Wikipedia didn't allow svg images when I first created them. Jrincayc (talk) 15:17, 30 March 2008 (UTC)

(backdent) yeah, a few more weeks of classes for me as well. I think I can wait. Pdbailey (talk) 02:14, 5 May 2008 (UTC)