Lagrangian multiplier and optimal bundle I would like to know where I am wrong (if I am) and why I am wrong here please:
If a consumer has an income of 600 euros to spend for good x (Px = 10 euros) and good y (Py = 5 euros).
What is the optimal bundle considering that U(x,y) = y + 100 ln(x)?
Here is how I did it (but I'm not confident):
Data:
$$
U(x,y)=y+100ln(x)
$$
$$
M=600 , p_{x}=10 , p_{y}=5
$$
Applied Lagrange equation:
$$
\mathcal{L}= U(x,y) - \lambda (p_{x}x+p_{y}y-M)
$$
$$
\mathcal{L}= y+100ln(x) - \lambda (10x+5y-600)
$$
Condition 1:
$$\partial U/\partial x-10\lambda = 0$$
$$100/x -10\lambda = 0$$
Condition 2:
$$\partial U/\partial y -5\lambda = 0$$
$$1 -5\lambda = 0$$
$$(\lambda = 1/5)$$
Using a system of equations I get:
$$ 100/x - 10\lambda = 2-10\lambda$$
$$ x  = 50$$
Now, plugging this into Condition 3:
$$M-p_{x}x-p_{y}y=0$$
$$600-500-5y=0$$
$$y=20$$
Therfore xMax = 50 and yMax = 20
The optimal bundle is (50,20)
Comment:
I'm so not sure about this...
I'm skeptical because condition 2 doesn't seem to show the y variable, which seems to indicate that y should be equal to 0 at that point (so we should expect a corner solution).
But then, as I found x after equating the two first conditions and plugged it in the third condition, it gave me y=20 after all.
So I'm kind of confused.
If both lambda in cond1 and cond2 are indeed equal to 1/5, my answer (y=20) should be ok but if it's not the case, it might very well be that y=0.
I don't know how to check my answer to be sure I'm right...or wrong.
And, if by chance, I got it right, can we rule out corner/boundary solutions anyway?
Thank you for your help.

Your steps look okay, and the solutions are correct. You can rule out corner solutions by evaluating the utility function at the "corners" and compare those values to the optimum you found. You should be able to verify that $U(50,20)>\max\{U(0,120),\,U(60,0)\}$.


Why are anti-dumping duties considered to be non-tariff barriers to trade? English is not my first language so sorry in advance!
please help me on this one I can't find a good answer, and until I have understood this one, I won't get the whole non-tariff barriers to trade thing.
so I've read a lot about duties being tariff barriers to trade.
but then I've read about the anti-dumping duties which are, despite being duties, non-tariff barriers to trade, and now I don't know why?
I'm hoping someone here could explain that to me.
Also, one question additionally, are duties based on personal preferences, e.g. political motivation, also non-tariff barriers to trade?
let's say I put a smaller duty on the product manufactured by a company that is owned by a "political partner".
the parameters here are political usefulness and thus not directly correlated with trade.
is that a non-tariff barrier to trade then?
hoping for answers, thanks!

It all comes to taxonomy. By definition of non-tariff barrier (Beghin 2016):

Non-tariff barriers (NTBs) refer to the wide range of policy interventions other than border tariffs that affect trade of goods, services and factors of production. Most taxonomies of NTBs include market-specific trade and domestic policies affecting trade in that market. Extended taxonomies include macroeconomic policies affecting trade. NTBs have gained importance as tariff levels have been reduced worldwide.

So by definition any policy that affects/limits trade that is not taxonomically tariff is a non-tariff barrier. Now when it comes to trade policy taxonomy anti-dumping duty is simply defined as a separate category from tariff (even though it might involve taxes at the border). Following Dinlersoz & Dogan (2010):

...  A tariff is typically designed to maximize either domestic revenue or domestic welfare.
An anti-dumping duty, on the other hand, is usually set to make up for the difference between a foreign firm's price at home and the
price of its exports, provided that the latter is lower. ...
... Tariffs are usually imposed
uniformly on all foreign firms exporting a given good to a domestic market. Anti-dumping duties, on the other hand, target a
specific foreign firm or a group of firms which are claimed to be dumping, that is, selling at prices deemed “unfair”. The goal is to
restore fair pricing, where the yardstick of fairness is usually the price prevailing in the foreign market. The tools differ also in
terms of the institutional and political process they need to go through to be initiated. Furthermore, there are cases where antidumping duties are introduced in an industry already protected by tariffs. ...

Hence even though there are some similarities these policies will have their own separate categories and thus by definition anti-dumping duty is not a tariff (this is similar like in biology fox and wolf will be different categories of mammal even though they are similar animals).

Also, one question additionally, are duties based on personal preferences, e.g. political motivation, also non-tariff barriers to trade?

Depends on what sort of duty it is and what it is conditional on. If it is tax on all foreign products of certain kind (coming from a specific country) then likely it would qualify as a tariff. If it is tax that is applied only to one foreign company due to some animosity likely it would not be tariff. However, the terms can be sometimes applied loosely.


Is protectionism more suited to large economies? Large economies like the US and China use tariffs as trade weapons while retaining competitiveness because they have the critical mass to encapsulate supply chains and avoid the cost of cross-border inefficiency.

Smaller economies cannot avoid the domestic costs associated with cross-border trade because they cannot avoid depending on cross border trade for supply chains.

Are these statements correct?

If so, does this lead to divergent trade strategies different sized economies?

Do smaller countries typically lean towards much freer trade out of necessity, while the largest economies like China and the US can afford and possibly even benefit from protectionism?

This is partially opinion-based. Even if we were able to calculate all the effects, we can still argue if variant A is better than variant B or vice versa.

I don't think that protectionism is suited to any economy. It typically protects local producers at a cost for local consumers. Local producers have less competition on local market, which allows higher prices or worse products, lower efficiency and so on. The winner is not the nation/state. The winner is just the producer, at expense of consumers.

Considering just relations between two states, protectionism damages both of them. It prevents usage of comparative advantages.

It might look like some big players like USA can more or less ignore rest of the world and produce locally everything they need. Well, they probably can, but at some cost. They can ignore manufacturing in China and build phones locally. Those phones would be quite more expensive and less competitive on both local and global market. They can force some advantage for local vendors on local market (at some cost for local consumers), but this does not help the companies on global market. Even with comparable level of isolation, United States could be richer than, say, North Korea or Iran. But they would be nowhere as rich as they are now.

By the way, there is some evidence of damages of de facto protectionism in large countries: sanctions on Russia. You might argue this is not protectionism. However, it has quite similar consequences – it inhibits international trade. The reason does not matter, the result seems to be the same.

Maybe it would be more disasterous* for a small country. But I don't think protectionism is useful even for large country.

*) in per-capita metrics


Intuition behind fixed effects estimator I understand that the fixed effects estimator in a panel model (say, individuals, $i$ across years, $t$) can be understood either as a including a dummy for each $i$ or running OLS on the time demean-ed data. My question is whether the estimate from the FE model (that is, the within estimator) is equivalent to the average of the estimates from running OLS on each individual separately. Consider the following two approaches:

$y_{it} = constant + \beta x_{it} + v_i + u_{it}$

$y_t = constant + \alpha x_t + e_t$ for all $i \in (1, 2, ... N) $

The second equation gives us an $\alpha^i$ for each individual and my question is whether $\beta =  \frac{1}{N} \sum_i^N \alpha^i$

I asked exactly the same question on math.stackexchange:

https://math.stackexchange.com/questions/1470490/fixed-effects-estimation

In short, the answer is yes, it can be viewed as running separate OLS regressions- the weights, however, are not arbitrary. It is a weighted average of the separate OLS regressions.


Are Price and Quantity Conjugate Variables? I am taking a thermodynamics class. In this class one of the things that is discussed is how the partial derivatives of the internal energy with respect to extensive parameters (entropy, volume, mol number, etc) give rise to intensive parameters (temperature, pressure, electrochemical potential, etc). For example for pressure and volume:
$$ P = \left(\frac{\partial U}{\partial V}\right)_{S,N} $$
The similarity between pressure volume diagrams and price quantity graphs (see below) got me thinking, is there a similar conjugate relationship between price and quantity? Maybe something like this:
$$ P = \left(\frac{\partial U}{\partial Q}\right)_{D^*} $$
Where $P$ is the price, $Q$ is the quantity, $D^*$ is either demand, supply or the conjugate of either and $U$ is some sort of economic (as opposed to thermodynamic) potential. This $U$ could be found with an intrgral but does it have a name? Can we use Legendre transforms to generate more potentials?

Lauwrence Lau (1969) has pointed out that "Samuelson has pointed out the basic duality that exists between the direct and indirect utility functions: They are connected by Legendre’s duaI transformation."
Lau (1973, chapter 1.3, section 1.4) makes intensive use of the Legendre transformation for deriving dual relationships between production and profit functions. This chapter is available here.
Most duality theory between direct and indirect utility functions, and between production, cost and profit functions rely on these relationships (See also Blackorby, Primont and Russell, 1978).
Blackorby, Charles, Daniel Primont, R. Robert Russell, 1978, Duality, Separability, and Functional Structure: Theory and Economic Applications, North-Holland.
Lau, L., 1973, Applications of Profit Functions, in Production Economics: A Dual Approach to Theory and Applications, edited by Melvyn Fuss and Daniel L. McFadden, North-Holland.
Lau, L., 1969, Duality and the structure of utility functions, Journal of Economic Theory, 1, 374-396.


Is there a reproducibility crisis in Economics? I am an undergraduate economics student, and came across this paper by John Ionnadis on 'The Power of Bias in Economics Research'. the findings are quite bleak.

https://academic.oup.com/ej/article/127/605/F236/5069452

Some examples I have come across which worry me.
From my studying of econometrics, this really doesn't surprise me. I don't think I've seen a paper, for instance, with test and training data, and an advanced undergraduate who did research for an academic over the summer told me that he basically messed around with parameters until he got the result he wanted. In fact, this undergraduate will be going to an extremely prestigious university for his PhD next year.

In economic history, which was the first area we read into the literature in first year, justifying the assumptions of OLS was always saying 'this should be plausible', for instance in a famous paper about settler mortality as an instrument for institutional quality. This sort of claim is hard to justify (e.g. settler mortality was probably influenced by prevalence of diseases like malaria, and who knows the broader implications of that).

Is there a strong case that Ionnadis is wrong?

There is a general reproducibility crisis in most fields of science including economics. First economics is actually doing quite well compared to other social sciences for example this study shows 54% of studies that authors tried to replicate in psychology could not be replicated but this study for economics shows only about 40% failed to replicate. This being said 40% is quite a lot.

So I would say yes there is a reproducibility crisis in economics (although note what is and isn’t reproducibility crisis is to certain degree opinion based).

However, I think that examples which you gave are not the main reasons for this crisis.

The first example of that undergraduate students is basically example of conscious $p$-hacking. This certainly occurs but usually it is done by people who are not really good at research to begin with and are under extreme pressure to show some output, so they resort to this "cheating" in a similar way bad students resort to cheating during exam. I would not say that at good universities vast majority of researchers would consciously $p$-hack. However, note I on purpouse separate conscious $p$-hacking from sub-conscious $p$-hacking that can occur due to subconscious biases that any of us have which can also occur when you are simply too invested in some topic so you even without realizing become little less rigorous when creating your model. Unconscious $p$-hacking is much bigger problem because it sneaks upon you without even realizing that your doing something wrong.

In the second example, I would not even say that is an example of doing some incompetent statistical analysis necessary. In case of IV you always can in the end rely only on some logical story based on which you justify the exclusion criterion and validity of your instrument. Statistically, you can measure strength of the instrument using $F$-statistics from the first stage, and relevance of instrument from looking at the output and some auxiliary stats there, but there is no statistical test to date that would allow you to check whether instrument is really exogenous and only affects dependent variable through the endogenous independent variable. Furthermore, sometimes you cant find any perfect instrument or model specification etc. so you will just do your best and as long as you are explicit in the research findings that the results rely on some oversimplification or possibly incorrect assumption, the findings might be still useful. In that case even if the results would turn out to be non-reproducible I personally would not consider it a problem.

What is really at the heart of the reproducibility crisis is actually precisely what Ionnadis finds, that is most of the studies are underpowered. However, this is not due to some conscious attempt to make it so but because power of most statistical tests depends on the number of observations and in economics its often very expensive and hard to get more data.

Next problem is the publication bias. Even if you manage to get solid power ($\geq80$%) as this video from veritasium shows, using 5% significance and with having 80% power, and assuming that out of 1000 relationships only 10% are correct, even if you do everything completely by the book without any bias (from the perspective of scientist) or messing with the data, if there is a publication bias towards positive results, you will find that almost third of the published studies will not be reproducible at all (so now the 60% of reproducibility from that study about experiments in econ suddenly does not even look that bad). This problem is not easy to solve because if we would move to lets say 3/6/9 sigma like in Physics then just due to sheer lack of data almost no result in social sciences would ever become significant. Moreover all journals care about readership (since that usually correlated with getting more citations and thus higher ranking of the journal), so they have strong incentive to publish novel interesting research rather than replications.

So to sum up. Yes there is a reproducibility problem in economics (and most branches of science). However, its not necessary due to conscious p-hacking or incompetence. Sure that can play a role, especially at worse institutions, but generally the problem is low power, publication bias and subconscious biases. This is why the problem is so hard to solve. Low power is due to data limitations, its hard to do much about that if collecting data is expensive. Publication bias, can be addressed but every journal wants to publish `sexi' new findings, so its very hard to find proper incentives to do that (although things are getting better), and finally its very hard to deal with potential subconscious biases - you might get so much convinced about truth of some model/statement that you unconsciously p-hack by lets say trying too many different proxies for the same thing and focus just on the best results - this is probably the toughest problem to get around as it requires large amount of self-awareness and discipline.


What type of an income distribution would allow the fastest growth and/or highest sustainability Is there a theoretical framework to explore the question of what could be the ideal distribution of income among a population that yields growth and/or sustainability?
Let $P(m)$ be a density function of the number of people having $m$ dollars. How do I find the function $P_{\text{optimal}}(m)$ that maximizes the ability of the market to "grow". I would like to get some help figuring out the basic concepts and definitions in order to address these type of questions. Namely, how to distribute income among population in the best way for the collective.

I would like to get some help figuring out the basic concepts and definitions in order to address these type of questions. Namely, how to distribute income among population in the best way for the collective.

There is actually no single best way of distributing income for the 'collective'. This is because what is best depends on normative judgement. What is best for utilitarian might not be best for Ralwsian or libertarian.
This being said there are actually ways of how to study what an optimal (re)distribution and taxation should look like depending on income distribution. To be more specific these models try to answer the question that given what your moral/political beliefs are how you can redistribute income in most optimal way.
If you are looking for general models then Mirrlees (1971), Diamond (1998) and Saez (2001) are good place to start. These papers consider optimal income taxation in static case but they are probably good starting point, even though due to being static models they are  not really good at answering growth related question but given that the dynamic models of taxation are infinitely more complex you would want to probably start here. A simplified version of the optimal income tax formula is given:
$$ \frac{T'(z_n)}{1-T'(z_n)} = \left( 1 + \frac{1}{\epsilon_{lT}} \right)\frac{\int (1-b_m)f(z_m)dz_m}{1-F(z_n)} \frac{1-F(z_n)}{z_nf(z_{n0})}$$,
with $b_n \equiv \frac{\Psi'(u_n)u_c}{\eta}+ nT'(z_n) \frac{\partial l_n}{\partial \rho} $.
This formula tells you how the marginal tax rates $\frac{T'(z_n)}{1-T'(z_n)} $ that govern both how much people are taxed and how much redistribution transfers people receive (since a transfer is just negative tax) will depend on the efficiency parameter $\left( 1 + \frac{1}{\epsilon_{lT}^*} \right)$  which is given by elasticity of labor supply to income taxes and which tells you how much taxation 'hurts' the economy.
The second part $\frac{\int (1-b_m)f(z_m)dzm}{1-F(z_n)}$ tells us what the marginal benefit of redistribution is and this marginal benefit factors in underlying actual welfare which is captured by $b_n$  which depends on both utility of consumers and the societal utility function (i.e. is our society Ralwsian, Utilitarian, Libertarian ...?- depending on different philosophy people are assigned different welfare weights - which you can interpret as telling you how much society  ‘values’ given person e.g. under Ralwsian min-max principle poorest person gets weight 1 and anyone else 0). Furthermore $f(z)$ and $F(z)$ are the density and cumulative distribution function of the income distribution respectively.
Finally $\frac{1-F(z_n)}{z_nf(z_{n0})}$ is the part that captures the relative magnitude of distortions created by this taxation. It gives us indication about how 'broad' tax base is at given point in income distribution and on margin how many people are affected.
Again if growth is an integral part of your question you will have to go beyond static models into dynamic ones (see short literature review on those in Stantcheva 2020) but I recommend starting with the static case mentioned above.
Furthermore, if by sustainability you mean environmental sustainability that is a question that is actually, generally speaking, across economic literature divorced from any distributional question. The reason for this is that the main point of government intervention in this area is to solve some environmental issue such as $CO_2$ over-pollution due to lack of private property for clean air and these problems usually exist regardless of any income distribution considerations. Usually these sustainability issues involve Pigouvian taxes or subsidies so that is a key word you can use in search for those kind of models.
There are also few papers that look at interplay between Pigouvian taxes and redistribution systems. On of the best papers I read on this issue is probably Jacobs and  De Mooij (2015) and this issue was also explored by Lange, & Requate (2000), but this being said there are not that many papers on this topic especially when you want to also add growth into the mix.

Per request in comments I am adding also my response comments to question if Pareto distribution is good for the economy.
The answer depends on how do you exactly define good and in what context. For example, empirically most ex ante (ex ante redistribution that is) income distributions around the world can be characterized as a log-normal distribution with Pareto tail. This is almost universally true. Now whether that’s good or bad depends on definition of what is good, for a Ralwsian such distribution is not good as a Ralwsian would in ideal world where there are no costs to redistribution prefer uniform distribution. This being said since in real life redistribution generally introduces inefficiency we can’t just choose arbitrary distribution of income we want. When you plug some real life distribution in the optimal redistribution models usually the ex-post distribution of income does not have different shape altogether rather it’s compressed or stretch here and there for example a Ralwsian social welfare function would stretch the log-normal distribution with Pareto tail at its left tail and compress it at the right Pareto tail but the shape does not change drastically. For other commonly used welfare functions same would hold but I suppose there could be some exotic one for which it would not hold.


What is the difference between the discount window and Fed repos? I'm wondering how the Fed's discount window differs from it's involvement in the repo market.

To the best of my knowledge, both are tools used to conduct monetary policy and both are also short-term, collateralised loans for commercial banks that are facing liquidity problems. So what is the difference between the two? The only one I can think of is that the discount window has different tiers of loans whereas Fed repurchase agreements do not but this seems like too small a difference to be the only one between the two.

Economically, they are both loans against financial instruments. The difference is the collateral posted - repos by the Fed are generally against Treasury securities. This is not a small difference: it makes it much easier for a bank to access liquidity, since not all of its assets are Treasury securities.

There’s a mechanical difference: a discount window operation is borrowing, while a repurchase agreement is matched pair of buy/sell orders.

Historically, there’s a big difference: banks only went to the discount window at the Fed if they faced liquidity problems. I.e., the Fed is the lender of last resort. This was greatly discouraged, as it was a signal that the markets did not consider the bank to be viable, and the regulators would want to know why. Since the Financial Crisis, there have been efforts to remove that stigma.


Considering how USD enters the market, is the USD actually unbacked? Could the USD represent a unit of a “fund” of securities held by the Fed? From my understanding, all new money enters the market either 1) by the Fed lending it to banks, so the Fed essentially owns bonds in the exchange, or, 2) The Fed purchasing other financial assets. So for each new dollar, it is represented by some new security in the Fed's "vault". This doesn't sound like it's unbacked to me. Hypothetically, if the Fed and the dollar "went under" would there not be some obligation to distribute these securities among all dollar holders?

Furthermore, what is stopping the Fed from acting like a fund where each dollar represents a (very) small percentage of all securities in "the vault". To me, it seems like this would create a basis for value of the USD. If a USD-holder were able to trade in his dollar for tangible securities, would this not increase his confidence in the system itself? What's the reason the Fed doesn't operate this way?

Very interested in hearing more educated responses to this, thanks in advance.

When the Fed purchases something, it creates the money to do so out of thin air (it just changes the balance in a bank's Fed account. Click, click.). Similarly when the fed is paid, the dollars disappear. From the Fed's perspective, dollars are very ephemeral and not backed by anything.

Dollars are not like debt. They don't entitle you to anything the Fed owns. The Fed can't "go under" in the normal sense of word (bankruptcy) because it has no obligations to repay or if it does, it creates the money to pay those obligations with no limitation.  It goes under only by an act of law.

It would be possible for the government to abolish the fed and take its assets, but that doesn't sound much like a fund to me--there is no reason to think those assets, whichever ones remain meaningful in that context, would be disbursed to dollar holders.  I would expect them instead to be kept by the treasury and used to reduce the national debt.


Existence of solution to maximization problem I'm a first year grad student and we're learning about the utility maximization problem and the producer's problem now. We have been assuming that a solution to these problems exists. But every now and then there's an exercise problem asking us to show that a solution exists. I have encountered once that "A maximization problem on a compact set has a solution". I wonder if there's any good reference on this? We're using MGW's Microeconomic Theory as our textbook; I thought I could find something in the appendix but I failed.

It is most likely that the statement is in the form of 'A utility maximization problem on a compact set has a solution when the utility function is continuous.' In the one dimensional case, this is a direct corollary of the extreme value theorem. A reference to this theorem can be found at https://en.wikipedia.org/wiki/Extreme_value_theorem

However, discontinuity of the utility function may break this result. Consider the following function.
$$
u(x) =  \begin{cases} x \mbox{ if $x\in[0,\frac{1}{2})$,} \\ \frac{1}{4} \mbox{ if $x \in [\frac{1}{2},1].$   } \end{cases}
$$
It should be immediate to recognize that this function does not have attain a maximum for any $x\in [0,1]$ even though we have a compact set.

A book that I had used before is here which deals with optimization problems of the sort of an economist would encounter in a rigorous way. Also, this book provides a more intuitive way of establishing the main results, which would be a better start.


How is it cheaper to take on debt when taking on a project? They mention that interest is tax deductible, so you pay lower taxes. But the tax is lower because your EBT is lower than your EBT if you didn't take on debt. I understand that taking on debt benefits all investors (more than 100% equity) But I fail to see how it is cheaper. Especially if you have to pay a lot on the long run.

I assume EBT = Earnings before tax.

Take a \$200 project with a 6% return on assets. If 109% equity financed, EBT = \$12 (6% return).

If debt has a cost of 5%, and 50% financed (\$100 borrowed), earns \$12 - \$5 = \$7, or a 7% return on equity. So the rate of return is higher, even though total earnings are less.

However, if interest were not deductible, would need to pay taxes on the \$12 pre-interest earnings, not the \$7, and so rate of return would be lower with a high enough tax rate. (E.g., if the tax rate is 50%, there would be \$2.50 paid on the cash flow required for interest, and the rate of return would be lower than a 100% equity investment.)


Is this market monopoly or duopoly? Could you help me to identify monopoly, because I got confused. There is a company with market share of 54 %. The second one has market share of 21 %.
Can this market be characterized as monopoly or maybe duopoly? Thanks in advance.

The definition of a monopoly is one company having the exclusive control of a good or service. Since there are 2+ companies it does not fit the definition of a monopoly.

A duopoly is a situation where 2 companies control the majority of the market. It sounds like this describes your situation.

A more correct term may be oligopoly which describes a market where a small limited number of entities controls the majority of the market. If there is a 3rd company which controls the remaining 25% market share this may be the most correct term but otherwise a duopoly is probably the correct definition.


Why does an economic slowdown lead to deflation? Usually economists say that in recession there is deflation, so increasing the money supply does not lead to a high level of inflation.
According to the Quantity theory of money, the price level is defined as such:
P = M*V/Y

Which implies that if the economy slows down, the V (velocity of money in circulation) goes down as well, leading to lower price level, hence lower inflation.
But what I don't understand, that at the same time the Y (Real GDP) goes down as well, cause of the recession, which should lead to a higher price level, hence higher inflation.

First, let me address some incorrect premises in your question

Usually economists say that in recession there is deflation, so increasing the money supply does not lead to high level of inflation.

This statement is not really correct. First, I dont know many economists who would say that usually recessions are deflationary. For example, according to Romer's Advanced Macroeconomics 4th ed, the macroeconomic aggregates in 11 recessions between 1947:1 and 2009:3 can be summarized as follows:

So out of 11 recessions during the time period under considerations only 5 were characterized by deflation, and average change in inflation over all 11 recessions was only $-0.3\%$ which indicates that the recessions with deflation had on average slightly higher effect than the recession with inflation, but the datapoint is so close to zero that it would most likely be statistically insignificant. So the statement you say about most economists saying recessions are deflationary is simply not factually correct. Or at least if there are economists saying that they definitely cannot be in majority and assuming that statement was correctly representing their views they would not be factually correct.
In fact as you can read in this old Economics.SE question in economics we even distinguish between inflationary and deflationary recessions acknowledging both types of recessions exist. Generally speaking you will find that supply driven recessions are more on the inflationary side (good example are the 1970s energy crisis) and demand driven recessions on deflationary side (great example of deflationary recession is Great Depression or Great Recession both demand driven recession).
Second, the two effects are not mutually exclusive with each other. For example, it can be that velocity of money drops by $10\%$ while real output drops only by $8\%$ leading to deflation. If output would drop by more than velocity you would get inflation. Money supply also matters as it definitely does not stay constant during recession. For example, Fed with its dual mandate usually tries to expands money supply, directly or indirectly, during recessions to stimulate the economy. In addition as disused by Krugman (1998), what matters is not just the actual change in money supply or other quantities but what are peoples expectations about changes in money supply and so on. An increase of money supply that is not credible to be permanent and expected to be quickly reversed will have no effect on inflation as if it would never even happen.
One important thing to note here is that when nominal interest rates are at zero lower bound (ZLB) it is correct to say that even large monetary expansion wont necessary be inflationary. The reason for that is that if you would want to go significantly below ZLB the peoples will strictly prefer to hold cash and any increase in money supply will be completely offset by drop in velocity of money. In such cases indeed increasing money supply wont lead to higher level of inflation but that certainly does not apply to any or as data above show even most of the recessions.


What is the economic strategy of the UK? The UK has run a current account deficit running into billions of GBP per annum since the turn of the century.

If we apply the mindset of a household to the economy then clearly this would appear to be unsustainable. But presumably the household mindset does not exactly map onto a country's economy.

What macroeconomic strategy is this and why can the UK get away with this (or can't it)?

You are correct in saying that a household is not comparable to the U.K. or any other country. A household does not issue currency and bonds and typically cannot issue debt obligations that are good beyond, say, approximately 30 years. A person in a household can borrow for approximately 30 years to buy real estate but it would be difficult for that person to borrow for 100 years. Contrast this to the U.K. government which can easily borrow for 30 years and even beyond 100 years. I am reasonably sure the U.K. will collect taxes from people that haven't yet been born and it will collect taxes from companies that have not yet been founded so the value of a long maturity bond appears to be supportable. Likewise some existing U.K. companies and some that will exist in the future can sell long dated bonds.  Existing U.K. companies and those that will exist in the future will also be able to sell shares in their equity and the buyer usually has no right to sell them back to the company, ever. That could mean a long time. If the equity being sold to foreigners is land then that is sustainable only until the supply of land on the islands of the U.K. has been exhausted.

The money raised by Britons working to produce exports pays for most of the imports. Additional to that, the money raised by the U.K. government and U.K. companies selling bonds and shares can be used to buy imports as long as outsiders want to buy bonds and shares. That might be many years so it might be sustainable for a long time. I don't know if this is as much a directed or planned strategy as it is a result that spontaneously emerges from a multitude of foreigners simply wanting to own U.K. real estate and bonds and shares and the U.K. willing to sell those assets. Additional to that, the U.K. receives interest, principal repayment, and dividends from abroad. The sustainability of these depends upon the particulars.


Where one can see the world economy sectors comparison by value? I'd like to know which economy sectors in the world are the biggest. Does such statistics exist? If so, how accurate and up to date is it? If not, what can be used instead?

The United Nations Industrial Development Organization (UNIDO) maintains a variety of databases comprising statistics of overall industrial growth, detailed data on business structure and statistics on major indicators of industrial performance by country in the historical time series. The UNIDO publishes the Industrial  Development  Report  2016 and offers some statistics.

This is one of the most reliable source of industrial data although data are still incomplete for some developing countries.

Broad Sectors: world value added over time. (Source: UNIDO)

Within Manufacturing: In  2013,  the  dominant  global  manufacturing  indus-tries were food and beverages (12.0 percent), chemicals and chemical products (11.7 percent) and machinery and equipment (8.5 percent; Table 7.2) (source: UNIDO's Industrial  Development  Report  2016)


Supply and Demand plotted on a three dimensional Cartesian coordinate system Is it possible ? if it's possible can someone give me a reference ? Thanks !

It is possible. Trivially if we have $Q^s=f(p)$ and $Q^d=g(p)$ and we plot this in a 3d-coordinate system with variables $p$, $Q$ and some other variable $x$ (which does not appear in our functions at all), then we can take a 'slice' for every $x$-value, and in fact every slice gives us the conventional 2d-depiction of this model.

We could of course take the standard supply-demand model and take some parameter as third variable, for example:

$$Q^s(p,t)=\max(0, p-t), \quad Q^d(p,t)=\max(0, 1-p)$$

Where $t$ is a unit tax imposed on the suppliers of the good in question. We can plot this in a 3d coordinate system with variables $Q,t,p$ and a red line showing equilibria:

As we would expect there is a positive relationship between equilibrium price and the level of the unit tax.


Why do we need both the UMP and the EMP? I understand that there are two common applications of Lagrangian multipliers in consumer theory: the utility maximization problem (UMP) ans the expenditure minimization problem (EMP).

These seem like the same problem to me but with different parameters being the focus. Why does my professor emphasize the importance of duality between these theories? I don't understand why both are needed.

my question:

To what extent are the UMP and EMP different economic ideas/problems as opposed to just simply being a different way of mathematically stating the same thing?

The solutions of UMP and EMP only coincide if certain conditions such as monotonicity of preferences is met. Hence they are different problems.

Duality is important because the Lagrangian multipliers frequently have an economic meaning. In the UMP the Lagrangian multiplier of the budget constraint is equal to the marginal utility of money.
In the EMP the Lagrangian multiplier of the budget constraint is equal to the marginal cost of utility.

In the EMP you can easily replace the consumer with a corporation deciding what inputs to use to create an output. In this case the Lagrangian multiplier would show the marginal cost of output.

In a similar way you could also alter the UMP to a problem where a corporation has to decide between some kinds of outputs and is trying to allocate resources in a way that will maximize profits. (E.g.: There are $m$ amount of man-hours and several kind of projects that can be taken on.)


Intuition behind a cournot duopoly nash equilibrium producing a higher output than a monopoly? I am just wondering if someone could explain the descriptive, not mathematical intuition behind why a cournot equilibrium for a duopoly produces a higher level of output than a monopolist but lower level of output than a perfectly competitive maket?

I can understand why a cournot model with many firms would result in a perfectly competitive outcome but why would a duopoly necessarily result in a more efficient outcome than a monopoly?

Thanks in advance

Producing more will decrease the price and therefore the profit per unit sold. For a monopolist, all units are their own units. For a duopolist, many units will be the competitor's units.

Viewed differently, producing more produces an externality between producers via prices in a duopoly. A monopolist internalizes these externalities completely.


Who determines the exchange rate and how? I have almost no knowledge about economics. However, a question always comes in my mind. How exchange rate really differ? I live in Bangladesh. So how, why, who changing BDT and US Dollar exchange rate?

Technically you are changing the BDT/USD exchange rate, or at least you're changing one of the reasons. If supply/demand changes, the value of a particular currency is going to change as well. But there are other factors - interest rates and political climate also affects the rate. To give you an example, Venezuela is now going through some rough times, perhaps not many people are willing to buy their local currency (VEF) today because tomorrow it may be not be worth the original investment, as as consequence the exchange rate BDT/VEF will increase: you can buy a lot of Venezuelan Bolivar with a few Taka. Each country then has its own policy to set exchange rates - basically there are two of them.

  Floating exchange rate

In this system the rate is fixed by supply/demand. Roughly speaking: a currency is worth whatever buyers are willing to pay for it. So, for example if (for some reason) many people in US are buying Euro (EU) then the demand increases, and so will the price, the rate USD/EU will drop and you will get fewer Euro for each US Dollar. Conversely, for Europeans the Dollar will depreciate as more USD were supplied to the market.

Usually countries with very mature/estable currencies have these systems (e.g. Canada, Switzerland, United States), allowing the exchange rate to adjust itself to local conditions (inflation, supply, demand, $\dots$). Although this may sound great, it actually has its drawbacks, for instance, lack of certainty may refrain some investors. One may argue that the fact that the economy is stable in these countries, then we're indeed certain of what's going to happen before an investment, but I guess that's a whole other story.

Below there's a graph of the evolution of the exchange rate for the Swiss Franc to USD:

  Fixed exchange rate

In contrast with the previous system, the exchange is artificially maintained fixed by the government. The way they do it is pegging the local currency to a foreign currency (say USD) and compensate the supply/demand in order to keep the exchange fixed. A good example of this system was the Chinese Yuan, when the local demand of USD increased, the government had to release US Dollar into the market in order to mitigate the fluctuation.

In the curve bellow I show the exchange CHY/USD, you can immediately see that in the period 1998-2005 (for instance) the Yuan was pegged to the Dollar:

After 2005 the model is changed, and they decide the exchange rate from a basket of external currencies.

  Managed exchange rate

In practice all governments make local decisions to modify the exchange rates, for instance to help import/exports they can slightly provide supply/demand so that the rate is modified.


What's the Cause of Mexico's Poverty Rate? According to various sources (source listed in parentheses):

Mexico's unemployment rate is 3.3% (Trading Economics)
Mexico's literacy rate is 94.5% (Statistica)
Mexico's upper secondary graduation rate is 49% (OECD estimate)

Yet, when I look at the poverty rate for Mexico, the poverty rate is 46.2%, according to Reuters.  Mexico has low unemployment and a high rate of education, yet almost half of its population is in poverty.  What's the cause of this?

High poverty rates are generally a result of two factors

A) Low per capita income (GDP / capita)

B) High inequality (frequently measured as the Gini coefficient)

There are multiple potential reasons for any country's income level and degree of inequality (not just for Mexico's). Moreover, one can decompose your question into two.

1) What makes some countries (in general) richer than others?

2) Is Mexico poorer because of some Mexico-specific factors?

The answer to the first question is kind of the Holy Grail of empirical economics, and if any single economist had been able to answer that he would have definitely won a Nobel prize. The consensus view is that there are different factors contributing to cross-country differences in income. Literacy and education, which you mentioned (and which fit into the economists' definition of Human Capital) are mostly likely a key factor. However, another one which appears to be particularly important to Mexico's case is the quality of a country's economic and political institutions. See below a highly recommended reading from an economist who's likely to win a Nobel for growth theory, which in his very readable book frequently uses Mexico as a case-in-point for his theory.

http://whynationsfail.com/blog/2013/10/29/what-are-institutions.html


Is there an economic rationale for wanting to know the gender of a child before it is born? [Rewritten to express issues in economics terms:]

In terms of the classic economic rational actor (Aka homo economicus) is there some rationale to want to know the child's gender before it is born.

Potential  economic advantages of knowing ahead of time:

Smaller decisions space for choosing a name
Can purchase items in advance

Potential disadvantages of knowing ahead of time:

Is there a utility of surprise?
Are excess purchasing impulses easier to control if you don't know the gender?

I would like to understand this in the framework of the classic rational actor (Assuming they would ever want to have a child)

One typical story people tell is that in some countries there are strict population control policies and if families have a large economic incentive to have either a son or a daughter, they might neglect their pregnancy or terminate it if the child is not the gender they want it to be. In some societies the economic incentives to have sons or daughters are very different: typically sons are expected to bring in a working wife into the family, with a dowry, but daughters are expected to leave to the husband's family and take a dowry with them.


Can central bank interest rate hikes lead to a price gain in equities? I ran an empirical analysis on recent interest rate changes of European central banks on Swiss equity prices and found statistically significant results. A 1 percentage point increase in interest rates would lead to a around 5% increase in the daily return of equities on the day the monetary policy announcement was made. For bond prices my results show that this would lead to a negative impact on bond prices of about 1%, which is what I would have expected for equities too. So how can it be that the short term response of equity prices to a rise in interest rates is positive?

perhaps flight to quality? ie reduced expectations of euro equity profits cause equity reallocation out of euro into chf.

and increased eur bond yields perhaps cause bonds reallocation out of chf into eur because of a) higher , ie more attractive coupons , b) eurchf xchange rate perhaps expected to strengthen


How a countries interest rate (official cash rate in NZ) and inter-bank network determines retail interest rates? In New Zealand, there is the OCR, which is the rate at which retail banks borrow from the central bank (https://www.nzherald.co.nz/nz/news/video.cfm?c_id=1&gal_cid=1&gallery_id=213767)

However, banks also borrow and lend money to one another in the inter-bank network. When banks lend out to normal people (e.g. taking loan out for a car), is the rate determined by the rate of the inter-bank network? In other words, does the inter bank lending market drive the interest rates (mortgages etc) - are the interest rates of mortgages determined by adding a premium to the inter bank market rates?

Edit: I should have phrased the message on the bounty differently. I didn't phrase my question correctly to address what I was confused about before.

The first thing to understand is that banks lend to each other as part of the normal functioning of the banking system. Banks transfer money between themselves based on customer transactions, and banks that end up losing flows typically borrow from banks with the excess. They do this on an overnight basis, since the flows can reverse the next day.

Central banks have a policy rate, the details of which depend upon the country. Typically, it undertakes actions to keep the private sector interbank lending rate near this target. It does not necessarily have to lend money to banks itself to do this.

  So is the official cash rate set by the central bank (or equivalent central bank rates overseas) the rate which banks lend to one another, or is it the rate the central bank lends to retail banks?

As explained above, the central bank announces a target for the overnight rate between banks. There are a number of ways to achieve this objective (repos, outright purchases of bonds, borrowing/lending, discounting bank assets). If you wish, you can search for those terms individually, or consult central bank websites for primers.

  And how does this ultimately affect normal people borrowing from
  retail banks?

Lenders compare the risks of potential borrowers, and charge a yield premium - a spread - for riskier borrowers. Lending to the central government is normally the least risky form of lending, and then lending to other banks. The implication is that all other forms of lending are riskier, and so they borrow from banks at a positive spread to the interbank rate. This means that the interbank rate is the benchmark for other borrowers, and explains why central banks guide the interbank rate.

(In the midst of a crisis, almost all forms of lending can be viewed as risky, and lending rates can be quite unstable. Central banks need to take actions to eliminate these credit stresses.)


Why isn't National Net Worth of a country used to calculate its economic power, as opposed to GDP? From Wikipedia:

GDP

  Gross domestic product (GDP) is a monetary measure of the market value
  of all final goods and services produced in a period (quarterly or
  yearly).

National net wealth

  National net wealth, is the total sum value of monetary assets minus liabilities of a given nation. It refers to the total value of wealth possessed by the citizens of a nation at a set point in time.

Being a super neofite (to say the least) in Economics my very naive question is: why is GDP always used in place of National net wealth to denote the economical superiority of a country versus another?

To put it in the way I interpret it: how a country producing 10 cars per year is economically superior to another country not producing any car at all but holding a giant reserve of gold (that could be employed to build 1000 cars factories the next day) ?

Your first country producing cars (possibly after receiving investment or loans from others) has an economy, and if it is selling cars then it can buy other things in exchange for cars. It could even buy some gold. So it has a degree of economic power, but so too do its investors, suppliers and customers.

Your second country sitting on a pot of gold and doing nothing (it may as well have left the gold in the ground) has no economy and no economic power until it changes that position.  For example it cannot buy more gold as it has nothing to use to pay for it except gold. Only after it has sold gold for something useful or productive might things change.

By the way, GDP (on the production measure) is actually the market value of all goods and services produced, less the value of intermediate goods and services consumed.  In a closed economy with no international trade, this is equal to all final goods and services produced (adjusted for the change in stocks of intermediate goods and services) but in an open economy in international supply chains it can be very different.


Why do banks need to write-off the debt against Shareholders capital invested I have seen the basic equation that rules this system:

$$ Assets = Liabilities + Equity $$

@Alecos Papadopoulos has a really great answer that totally makes sense for this question.  But, I would like to ask, why does the bank need to write-off the debt against Shareholders capital invested?  Why cannot they act like the Pope and say, "I forgive your debt" then move on and not write off the shareholder's capital?  Would this not be better for everyone?

Further, I have read Jeffrey Sachs has argued for debt forgiveness for developing countries that have trouble paying back their debt, is this a similar situation replacing Person $A$ with country $A$?

"Double-entry" bookkeeping is the resulting methodology of the fundamental approach of Accounting science to what a productive mechanism does (be it a company or whatever): Accounting perceives productive entities as mechanisms to transform capital from one form to another, irrespective of what their economic goal is for doing this (profits, charity, whatever).

The Liabilities+Equity side shows "how much capital and from whom" has  the firm sourced and put it under its control, and the Assets side shows to what forms the firm has transformed this same capital . But if it is the same capital, it necessarily has the same value : this is why accountants write the same number twice: they write it once and link it to a code that shows from whom did the firm get this amount of capital, and they write it a second time and link this to a code that represents to what has the firm transformed the capital.

So I took a capital of 1,000 from a source called, say, Shareholders, (or Deposits, or a combination) and transformed it in another form of capital called "Loans to customers". I write the number down two times, one linking it to the code that Shareholders have, and a second time to link it to the code that "Loans to customer has".

At the same time "Liabilities + Equity" shows how much capital must the firm return back -because in the theoretic Accounting model, the company itself "owns nothing", it is just a capital transformation mechanism. It may has capital under its control, but it has eventually to return it.

Now the customer appears and says, "no payback". It is the same thing as a fire destroying a building - an amount of capital has been lost. So the company can no longer return it. Given the general legal/social arrangements, in such cases, irrespective of the actual source of capital (say, Deposits), those who will now must expect to get lower capital back, are the shareholders. So the double-entry write-off of the bad loan reflects exactly that fact: "I, the transformation mechanism, inform the world that a) I just lost an amount of capital and consequently that b) given the rules, my shareholders have now a lower claim from me, as regards the return of capital to them".

Not doing this, won't "be better for everyone", because it would be misleading - by looking at the bank's book, the shareholders would still expect to receive back their 1,000 investment, but they would eventually find out that only 100 are there in reality.

I hope that helps.


Buying locally vs abroad I interested in the net effect of buying locally versus abroad.

The UK Government wants to buy a ship. It can buy from a UK or Korean shipyard. The unit price is the same for both yards: £10. A ten pound note. Nice and simple for the purpose of this example.

If the purchase is from the local shipyard, then the ten-pound note is delivered to the local yard directly from the bank account of the Government, having previously been forcibly removed from other UK citizens via taxation. This wealth is then distributed throughout the UK economy, via the employees and suppliers of the shipyard.

Some people advocate buying locally for this reason: they view this local economic stimulus as a positive side-effect of buying locally.

If the ship is purchased from Korea, assuming perfectly efficient currency exchange, then the wealth is transferred (having been converted into the Korean currency by a foreign exchange brokerage) to a Korean company. This wealth is then distributed around the Korean economy in a similar way, and presumably the Korean economy sees the economic stimulus.

But the original ten pound note has not vanished. It is now sitting in the bank account of someone behind the foreign exchange brokerage. This ten pound note will either be saved, or converted into another currency, or spent in the UK, because the UK is the only location where it is legal tender. So the money is STILL (eventually) spent in the UK, but a little more circuitously.

Is my understanding correct?

Does this mean buying locally is in some sense equivalent to buying from another economy? Or where have I gone wrong?

Does the situation change if Korea has the same currency as the UK?

The currency is not as relevant as so many other more important factors.

Buying a better ship is a very important factor. If a better ship is chosen and it is Korean, then the buyer (and seller) will benefit from their comparative advantages. I.e. instead of making British workers produce inferior ship, they can produce something they are better at instead, sell that to Koreans, and buy a better ship from them.

Another factor is the fairness of trade. Is the trade fair? Are there any tariffs, subsidies, dumping, theft, currency manipulation, corruption, extortion, forced labor, etc. etc. going on? Maybe not in South Korea and UK, but generally international trade is never perfect.

National security. Are you buying a military ship? A tanker? Is the deal big enough to be abused for political purposes?

There are many more of course.

Currency element is just that one item the list that I highlighted.

That's why big deals like ships, which are more like into 10 billion pounds, usually require a lengthy public review process to go over all of these issues.

On the other hand, if we are talking about 10 pound soda bottles, then currency is about irrelevant for large to medium businesses that can fix exchange rates using Forex futures or swap contracts at virtually no cost. Different currencies is a problem for smaller businesses because accessing heavily regulated financial markets is pretty tough for them and they usually have to bear exchange rate risks and pay hefty commissions to the local banks.


What is a merit good? I just came across the concepts of merit and demerit goods for the first time, in the Cambridge A-level economics syllabus. I wasn't sure what they were.

Is a merit good simply a good that has positive 'internalities' (benefits that the consumer is unaware of)?

And similarly, is a demerit good simply one with negative 'internalities' (costs that the consumer is unaware of)?

Richard Musgrave (1957, 1959) invented the term. My interpretation of what he says (below) is that merit goods are simply goods that the "community" deems desirable, while demerit goods are those the "community" deems undesirable.

He (1987) writes that the concept (of merit goods) is "best applied where individual choice is restrained by community values" ... "Community values ... give rise to merit or demerit goods" ...

Such goods are where "community values" act "as a restraint on individual choice". The "evaluation of a good (its merit or demerit) derives not simply from the norm of consumer sovereignty but involves an alternative norm."

Examples of merit goods are "Concern for maintenance of historical sites,  respect for national holidays, regard for environment or for learning and the arts."
Examples of demerit goods are drug use and prostitution because they are "offences to human dignity (quite apart from potentially costly externalities)."

P.S. There is of course the difficult question of who or what exactly the "community" is. If I may add my humble opinion, all of this sounds very illiberal and even mildly fascist. Which is perhaps why this concept hasn't been much taken up by mainstream economics.

P.P.S. The above is merely Musgrave's interpretation. As Musgrave himself says:

  The concept of merit goods ... has been widely discussed and given divergent interpretations ... it is thus difficult to provide a unique definition.


Coefficients of Cubic Total Cost Function Given a Total Cost equation $TC(Q) = a + bQ + cQ^2 + dQ^3$ what do the coefficients mean? For example $a$ is fixed costs, what are $b,c,d$ and how are they calculated?

There is no deeper meaning than what you already discuss.

The Total Cost function is always made up of fixed costs plus the variable costs (each of which may be zero). We have:

$TC(Q) = F \; + \, VC(Q)$

where $TC$ is the total cost function, $F$ are the fixed costs and $VC$ are the variable costs.

Fixed costs do not depend on the quantity, unlike variable costs. There is nothing more to it. In your case, $a$ is the fixed cost and the variable costs are $bQ + cQ^2 + dQ^3$. The relation between quantity and variable costs is somewhat complicated and non-linear in your example, but there's nothing wrong with that. The exact form of the cost function comes from the technical aspect of the production process, which may very well be complicated.

So $b, c, d \,$ are just exogenous parameters (imagine them as numbers), which give the shape of the cost function, but do not have any deeper meaning. Furthermore, they will not be solved for or calculated and are simply taken as given. This is always the case with parameters. In solving economic models, you take the parameters and exogenous variables as given and solve for the endogenous variables, which in your case probably involves the quantity $Q$.


Is there any evidence for consumer utility-maximising behaviour, at individual or market level? Even though utility maximisation is ubiquitous in economic textbooks to model consumer behaviour, its usefulness is rarely demonstrated by evidence.

Is there any evidence that some consumers do behave that way on at least some markets?

Utility maximisation applied to a representative agent is also often used to model the demand side of a whole market. However, here also, this is hardly ever justified by evidence. On the other hand, alternative models seem to have good properties too: for instance in Complex Economics by Alan Kirman, it is said that random consumption + heterogeneity of income suffices to construct an aggregate demand that decreases as price increases. Random consumption does not seem more stupid than perfectly informed utility-maximisation... but sounds definitely simpler.

Is there evidence that utility maximisation used as a model of the demand side of a market is actually better than other (simpler) models of consumer behaviour?

Since utility by definition measures something very innate or subjective, it is difficult to obtain any non-experimental data on it. Hence researchers focus on choice, which is something observed in practice. This is where WARP, GARP and SARP comes in. Of which, GARP is the most relevant.
Any data generated by a utility maximising agent (with well behaved preferences) will satisfy GARP. The converse is true as well through Afriat's theorem - for any data satisfying GARP, there exists a utility function that rationalises it.
Note that it is difficult to study aggregate demand for such conclusions as well. The Sonnenchein-Mantel-Debreu Theorem basically kills any predictive power in this regard. So I would suggest you look up papers that empirically test GARP from choice data. Here's one such paper: Echenique et al
P.S. Mentioning @MichaelGreinecker here since I just noticed his comment that gave the same answer. :)


Why are there estate taxes after the owner passes away? Isn't it unfair for estates to be taxed after death? The person who bequeathed the estate probably purchased it with after tax money, so wouldn't it then be taxed twice? What is the purpose of the tax other than to generate funding for government spending?

From an equality of opportunity perspective, it is desirable to have some taxes on inheritance. This levels the playing field for each generation to some extent. If real estates are exempt from such a tax, individuals would prefer real estate over other assets, creating a distortion in the asset price market.

For a recent contribution to optimal inheritance taxation, see:
Piketty, Thomas, and Emmanuel Saez. "A theory of optimal inheritance taxation." Econometrica 81.5 (2013): 1851-1886.

For an overview over the equality of opportunity literature, see:
Corak, Miles. "Income inequality, equality of opportunity, and intergenerational mobility." The Journal of Economic Perspectives (2013): 79-102.


Ordinal axiomatization of proportional division A proportional division is a kind of fair division in which a resource is divided among $n$ partners with subjective valuations, and each partner receives a share which is worth for him at least $1/n$ of the total resource value.

This definition is cardinal in nature: it relies on the assumption that each partner has a numeric value function which is unique up to scaling.

Suppose that all we know about the partners is that they have an ordinal preference relation. Is there a natural way to define the notion of proportional fairness in this case?

I thought of several possibilities myself, but I would like to know if something like this has already been done in the literature.

The answer hinges on the level of 'atomicity' dictated by the problem. If the decision making unit is non atomic- i.e. can make infinitesmal decisions- then there is always an algorithm corresponding to the competitive allocation such that it is known also to be a 'cardinal' value allocation under certain conditions- vide Aumann & Shapley. However this would not be robust to even a small perturbation towards atomicity. My understanding is that this field is interesting because of how small changes in the lower limit to what is within the agent's decision making scope can lead to big changes in behavior

D.G Saari's work may be of interest if only as an awful warning- vide http://socioproctology.blogspot.co.uk/search?q=dark+matter


So what exactly happens to the real interest rate in the long run? I have two books both written by MIT professors, Macroeconomics by Blanchard and Economics by Acemoglu.

Regarding to what happens to real interest rate in the medium/long run after the central bank lowers the interest rate, the two books has two very different explanations.

Blanchard explains through the IS-LM and AS-AD model that increase in real money stock leads to decrease in real and nominal interest rate in the short run, but in the medium run, because output returns to natural level of output, the real interest rate returns to the natural interest rate. Therefore money growth has no effect on real interest rate in the medium run.

But in Acemoglu's book it says and I quote

  The long-term real interest rate is the long-term nominal interest
  rate minus the long-term expected inflation rate. When the Fed
  influences short-term interest rates, such as the federal funds rate,
  this affects the long-term nominal interest rate. A long-term loan is
  like a combination of short-term loans. You can think of a 10-year
  loan as ten 1-year loans lined up one after the other. When the
  federal funds rate goes down, the interest rate for the first 1-year
  loan goes down. In addition, a change in the federal funds rate is
  usually not reversed for several years, so several of the 1-year loans
  in the 10-year loan package are affected. In most cases, when the Fed
  lowers the federal funds rate this has little impact on long-term
  inflationary expectations. Summing this up, the long-term real
  interest rate tends to fall when the federal funds rate falls because
  the long-term nominal interest rate falls and inflation expectations
  tend to stay roughly the same.

Did I misinterpret the two authors or what?

Can I assume Blanchard's medium run and Acemoglu's long-term are the same thing in this context?

Blanchard examines a case with a single interest rate, and what happens to it "in the medium long-run" (in the sense of the economy being in equilibrium). His discussion is the most abstract.

Acemoglou discusses a more realistic case where many different interest rates exist at the same time, and analyzes the observed phenomenon that interest rates on short-term loans are different than interest rates on long-term loans, even when both contracts are entered into at the same calendar time: the time horizon of the contract matters for the interest rate itself. He then goes on to discuss how monetary policy may or may not affect expectations.

So when Acemoglou says "the long-term real interest rate tends to fall..." he does not mean "the real interest rate characterizing long-run equilibrium tends to fall". He means "the real interest rate that is currently imposed on loans with a long-term horizon, tends to fall".

These aspects are simply absent in the basic IS-LM / AS-AD analysis.


Why does a loose Fed policy reduce the downward pressure on the currencies of emerging markets? To start off, my background is not in economics but in Computer Science. I recently read in the Economist that a looser Fed policy removes downward pressure on the currencies of emerging markets.

Is this because a looser Fed policy makes investment in riskier emerging markets more likely due to the higher rewards in those markets? And if this is the case, how does this impact the currencies of those markets? I would really appreciate some guidance in understanding the above claim.

It’s because broadly speaking the exchange rate between two countries, using monetary model of exchange rates, follows the following relationship:

$$S=\ln(m)-\ln(m_f) -(\ln(y)-\ln(y_f))+\lambda(i-i_f) $$

Where $m$ is monetary base $y$ is output and $i$ nominal interest rate. Subscript f indicates foreign country. Now from perspective of developing country (so f=USA) loosen monetary policy means that $m_f$ would expand and also $i_f$ get smaller, which would lead to appreciation of the exchange rate for developing country or if there is due to $y$ or other factors already pressure for depreciation the pressure will be lower.

The intuition is that the exchange rate must be such to bring the price levels in two countries given their respective currencies to balance and the price levels in each country depend on money supply, output and interest rates. Since all currencies can be valued only relative to each other even if the home country (here developing country) does not do anything when the foreign country (here US) increases their price level and makes their currency less valuable automatically the home currency must be strengthened as its valued only relative to the other currency.

Of course in real word non of the factors are held constant and generally developing countries face strong downward pressure on their currencies because their output is so low and many developing countries also follow quite loose monetary policy often. However, again since exchange rates are relative the looser monetary policy (that is monetary expansion) in US decreases the downward pressure on the developing currencies since now there are factors that actually strengthens their currencies (namely the larger $m_f$ and lower $i_f$.

Also generally the extra riskiness of the investments in developing countries is already priced in in the interest rates companies there have to pay which already includes risk premium. If it would not be fully included there then the difference would make the exchange rate move according to above model, so that could happen as well but that would not be dependent only on whether Fed follows loose or tight monetary policy.


Long run trade off between inflation and output In "The incredible Volcker Disinflation" by Goodfriend and King (2005) we are presented with the NK Pricing equation

$\pi_t = E_t\pi_{t+1} + h(y_t-y_t^*)$

the author then mentions that there is no "long run trade-off" in the equation since "output is at capacity when current and expected future inflation are equal".

Can anybody elucidate the meaning of "long run trade-off" and the following sentence?

Note that if $\pi_t = E_t\pi_{t+1}$ (current and expected future inflation are equal) then

$$\pi_t = E_t\pi_{t+1} + h(y_t-y_t^*) \implies 0 = h(y_t - y_t^*) \implies y_t = y_t^*$$

So as the output gap tends to zero in the long run, inflation will perfectly determine next period's inflation, so monetary policy that affects inflation in the short run cannot affect output in the long run. Thus there is no tradeoff between inflation and output in the long run.


Fraction of labour force providing income redistribution services What % of the labour force for an OECD country like the UK (mostly civil service I'm guessing) deals primarily with income redistribution, rather than income generation? Would a simple flat income tax at 40% and a universal basic income have the extra benefit of letting more people enter the value adding economy?

"What % of the labour force for an OECD country like the UK (mostly civil service I'm guessing) deals primarily with income redistribution, rather than income generation?"

It seems like you are talking about the   Volunteer sector .

in the UK particularly  NVCO reports in its 2012 almanac:

  What is the relative size of the voluntary sector workforce?

  The voluntary sector is a major employer. An estimated 765,000 people work in voluntary sector organisations. This is 2.7% of UK workforce, and compares with 25% who work for public sector employers, and 72% who work for private sector employers. The voluntary sector paid workforce is roughly the same size as the number employed in restaurant and catering in the UK (around 770,000).

For your second question:

  "Would a simple flat income tax at 40% and a universal basic income have the extra benefit of letting more people enter the value adding economy?"

I see no connection between an income tax and creation of jobs. Labour supply models would indicate that we  will see changes in the amount of labour supplied by a given worker in the presence of income taxes and will end up with some deadweight loss.

This is not fully explained but a clearer understanding of the effect of income taxes  on welfare will come from reading up on labour economics models.

Hope this helps.


Utility of expected income or expected utility of income? Currently I am reviewing microeconomic material related to utility maximization due to an upcoming examination. One old exam question asks me the following for which I am not sure whether to use the utility of expected income or the expected utility of the income.

Suppose agent A has the utility function $u(y) = y^a (a > 0)$ and the possibility to study and pay university fees $F$. After studying he may get income $y_1$ with probability $p$ or income $y_2 < y_1$ with probability $1 - p$. If he does not study he will have income $y_3 = 0$. When will the agent start studying and what does it depend on?

My thoughts on this question are as follows. Intuitively, it will highly depend on the fees $F$. On the one hand, the expected income of the agent if he studies is

$$\mathbb{E}[y_i] = p(y_1 - F) + (1 - p)(y_2 - F) = p(y_1 - y_2) + y_2 - F$$

If he does not study the expected income is just $F$, i.e. the saved fees.

So the utility of the expected income is just $U(\mathbb{E}[y_i]) = (p(y_1 - y_2) + y_2 - F)^a$ in case he studies or $U(y_3) = F^a$ if he does not. I could just set up an inequality now and say that if
$$ p(y_1 - y_2) + y_2 > 2F,$$
that is, if the expected net income is greater than twice the fees, the agent decides to study. But then I remembered that I might be wrong in looking at the utility of the expected income and that I should rather look into the expected utility. Then, if the agent studies he will have expected utility
$$ \mathbb{E}[u(y_i)] = p(y_1 - F)^a + (1-p)(y_2 - F)^a = p((y_1 - F)^a - (y_2 - F)^a) + (y_2 - F)^a$$

and, if he does not study,

$$\mathbb{E}[y_3] = F^a $$

Similar to above I now could set up an inequality which is different from the one before. Therefore, I am a bit puzzled as to which utility to use here? The expected utility or the utility of expected income and why?

Your problem has problems with it.  There is no disutility of studying and there is no interest rate or it is zero percent.  However, let's consider the three possible cases.

If $y_2>F$ then for all cases you should study.  If $y_1<F$ then all cases you should not study.  The difficulty happens when $y_2<F$ and $y_1>F$.  Then you should study if $E(U(s))\gg{U}(F)$ and not if $E(U(S))\ll{U}(F)$.  The difficulty with the phrasing of the problem arises when $E(U(s))\approx{U}(F)$.

From the form of your problem, indifference should happen at: $$(y_1^\alpha-y_2^\alpha)p+y_2^\alpha=F^\alpha.$$  It should have been written as: $$(y_1^\alpha-y_2^\alpha)p+y_2^\alpha-U(s=study)=F^\alpha(1+\bar{r})^\alpha.$$  You cannot differentiate over $s$ because it is a binary choice.  In fact, $y_1,y_2$ are really $y_1(s=study)$ and $y_2(s=study)$ and $F$ is really $F(s=\text{don't study})$.

For the form of your problem, you should be indifferent if: $$p=\frac{F^\alpha-y_2^\alpha}{y_1^\alpha-y_2^\alpha}.$$  This permits an objective solution that does not depend upon the person.  For the more expansive problem at the indifference point, the solution depends upon the market rate of interest and the subjective cost of studying.

This implies two important things.  The first is that the value of an education depends on market rates of interest.  Because of this, there should be a decrease in the rate of education when rates are high.  The second is that the indifference point for the probability depends on the specific person.  This implies that probability has a subjective component, even when the probability is external to the person.  Indeed, if the probability is a function of all the choices of all the people, then the probability actually depends upon the marginal rate of disutility experienced in studying.


What is the difference between a perfect foresight equilibrium and a rational expections equilibrium? What is the difference between a perfect foresight equilibrium and a rational expections equilibrium?

Why is it the same in case of a non-stochastic model?

Can there be a perfect foresight equilibrium in a stochastic model?

This is not a formal definition, but a useful piece of intuition. I  think that the best way to think about it is that when there is uncertainty in a model it arises mainly in two forms either there is information that some agents have, but not every agent has it (private information), or there are truly random events that no one knows (in game theory jargon, these are moves by nature).

This difference is key because private information affects agents' decisions. So for example, if the model predicts that people will act differently depending on their private information, a rational expectation equilibrium assumes that everyone understands this, and so by observing people's actions, they can infer their private information. If the "relevant outcome" that agents have to predict. depends only on all the private information dispersed among people, probably you can see how you can get people behaving as if they had perfect foresight.

Contrast the assumption of rational expectations with an assuming that agents are agnostic about how other agents use their private information to make decisions, or with assuming that agents predict the "relevant outcome" only using their own private information and past trends of the relevant outcome. In these cases, we should not expect a perfect foresight equilibrium.

How does that relate to stochastic models?

If the source of uncertainty is not only the existence of private information, but also "true randomness" then even a rational expectations equilibrium will not have perfect foresight (except perhaps by coincidence). Loosely speaking, if the model is stochastic, then it will predict many possible outcomes (each with some probability attached, perhaps), and agents will also expect these outcomes in a rational expectations equilibrium. Thus maybe agents make a decision based on the most likely outcome, however, this outcome may or may not occur (i.e. no perfect foresight).

(Further readings)

In the Wikipedia entry on this topic, here, you can see that rational expectation simply assumes that agent's expectations are the same as the model's predictions, so if the model is not stochastic (it has a unique prediction) agents anticipate it, hence the perfect foresight. But otherwise, these two concepts do not coincide.


Who is losing in an arbitrage? When some entity takes advantage of an arbitrage opportunity, who is losing money? For example, when there are price differences across cryptocurrency exchanges and someone exploits an arbitrage opportunity, who is losing out?

A vaguer question: what are the microeconomic implications of arbitrage?

Nobody has to loose in an arbitrage. Economic relationships are not necessarily zero-sum (in fact often they will not be zero-sum). For example, if apples in city A are sold for ${\\\$}5$ and apples in city B can be sold for ${\\\$}8$, and we assume zero transaction cost there will be an arbitrage opportunity to earn ${\\\$}3$ riskless profit per apple by buying apples in city A and selling them in city B. But nobody looses in the transaction.
The apple producers in city A clearly value ${\\\$}5$ more (or at least indifferent) than an apple otherwise they would not trade it and just keep the apple. So giving them ${\\\$}5$ will make them better off (or at least not worse off). Then in city B people who buy apples must value apples more than ${\\\$}8$ they are paying for it otherwise they would just keep the money instead of buying them (or at least they must be again indifferent).
Consequently, when people take advantage of arbitrage opportunities generally speaking nobody looses anything. There must be some other issues present that would turn the problem into zero-sum game.
Regarding the microeconomic implications the main one is that people will take advantage of the arbitrage opportunities until the prices on the markets equalize - in the example above until the prices in both cities would become equal. The law of one price is based on the concept of arbitrage. There might be other implications depending on precise setting where arbitrage occurs, to explore all of them would be beyond the scope of SE answer.


Differences between international and national creditors When considering a nations debt, how does it affect the nation whether its debt is held by national or international creditors? If there is preference does this translate into different prices for the debt?

I think it's going to be hard to compare the price for a country with a large internal creditors and another one without, as such a price depends on many parameters apart from that.

But to answer the core of your question, it does have an influence. In many European countries, the public debt is considered a huge problem since the 2007-2008 crisis at it reaches the 100% of GDP. And it is a problem because, those countries have to spend a huge amount of the GDP to pay back that debt, with interests. They can't default without having much higher prices (see Greece, Spain or Italy around 2010). The 100% of GDP is a virtual barrier that is considered critical by many investors or specialised press.

In contrast, a country with a large part of national creditors, Japan, currently run with 217% of its GDP debt. Yet the market for the government bonds in Japan is quite stable.

This might crudely be explained by a link between the two elements of the debt. National have all interests that their own government functions. If their own government has money, they can invest in their economy, which profits directly the investors. If the investors are abroad, they would be less affected by a slow down or a crash or the economy, and thus ask for higher prices to compensate for the risk of defaults.


What is the A in the Accumulation and Amount functions for the value of investments? A number of interest functions, such as the accumulation function and the amount functions include an A (sometimes capitalized, sometimes not).  Could someone tell me what the A represents?  Here's an example:

Usually one can think of $a(t)$ as some form of interest.

So, we can normalize some initial investment to 1 so that:
$$a(0) = 1 $$

letting $k$ denote some initial investment, we can have that the value of $k$ at time $t$ is give by your formula:

$$A(t)= ka(t)$$

So, for example, if you invest k=10, assume an interest rate $i=5$% and compounding interest, then ten periods after you invest your money, $k$ is worth:

$$A(10,k) = 10*(1+.05)^{10}$$


Asset Market Effects on Balance Sheets I am currently using Mishkin's textbook "Economics of Money, Banking and Financial Markets." The chapter on financial crises starts with the causes of financial crises.

One reason given is the Unanticipated Decline in the Price Level. I quote "In economies with moderate inflation, which characterize most industrialized countries, many debt contracts with fixed interest rates are typically of fairly long maturity (ten years or more). In this institutional environment, unanticipated declines in the aggregate price level also decrease the net worth of firms. Because debt payments are contractually fixed in nominal terms, an unanticipated decline in the price level raises the value of borrowing firms' liabilities in real terms, but does not raise the real value of firms' assets."

I get that as the value of money is increasing over time (deflation), the real value of the debt is increasing.  What is the reason for asset values to not be rising? If the nominal value of the assets stay the same, then assets will be rising in real value (as money is becoming more valuable). Am I missing something obvious?

The textbook assumes that assets are real assets (inventory, equipment, etc.) that are falling in nominal value along with the price level. However, this will not be the case for financial firms, as their assets are almost always fixed nominal loans. So there is an embedded assumption that this only refers to non-financial firms, which is not specified in the quote provided. (Note that “borrowers” does not imply non-financial, since financial firms are major borrowers.)

However, this is a questionable reason to explain a financial crsis. No firm revalues assets or liabilities based on changes to the price level. The real concern is that falling prices imply falling nominal revenues, which are matched against fixed nominal debt payments. So it’s not really the balance sheet value, rather the prospective value based on future profits that are shrinking. In other words, the problem shows up in the income statement, not the balance sheet.

On paper, accounting values are supposed to reflect prospective profits, but in practice, continuous revaluations are not part of accepted accounting procedures. An asset has to be obviously impaired before being written down. Therefore, balance sheet revaluations (other than loan losses) are not the driver of a financial crisis.


Are all country government budgets made up of taxes? Sorry for my ignorance, but I was doing research and noticed that the US's budget is made up of taxes. Is that for all countries? Where is the line between the economy and the government budget? Are natural resources used for government spending?

The answer to your first question is no.

For example in Saudi Arabia only foreign residents are taxed. The state can afford to do this because it owns the oil fields and receives a lot revenue from them.

In Russia the oil and gas companies gave 52% of the federal budget. Part of this is in the form of taxes, but it is mostly the profit of Gazprom, the state owned gas company. The Russian government also collects personal income taxes as well as other kinds, so taxes are also a source of their budget.


Inflation , Housing Prices, Is there some form of the CPI that can include Home Prices? I understand why we don't include real estate in the CPI. It makes sense, when it is explained to me. I also understand Rent is included in the CPI.

However? I live in Canada . Our Populations Household Debt to Disposable income has been rapidly rising. Our real estate prices in urban centers have also been going up in value very quickly. We have very low interest rates. I also know this same effect is happening in Australia, and I believe Hong Kong.

To me this shows there is a correlation between household debt and rising home prices.

To me this extreme of rising house prices clearly is an example of too much cash chasing too few goods ( houses ).

https://tradingeconomics.com/canada/housing-index

https://tradingeconomics.com/canada/households-debt-to-income

Is there a better calculation that may include some form of rising/falling real estate prices into a consumer price index to show inflation? <-- this is my question

I've also noticed that if you take the median total household income in the Province of BC and you use it in a Canadian Bank mortgage calculator, there is no way a person could afford any home in the Vancouver Region, and the majority of the population lives in Vancouver. So clearly there is a disconnect.

House price increases lead to increases in wealth for homeowners and increases in rental payments for renters. Thus, unlike for consumer products of the CPI like vegetables, milk, cheese, meat, or toothpaste for which the welfare impact of the increase of the price is clearly negative, the welfare impact of house price increases is ambiguous. In many countries the homeownership rate is greater than 50%, hence the median household tends to experience pretty significant increases in wealth in hot markets.


How can the HKMA peg the Hong Kong dollar at 7.8 HKD/USD for so long? A lot of pegged exchange rate systems don't stay pegged for so long (e.g. because the central bank run out of reserves to maintain their values)

So far I understand that the HKD is 100% backed by the USD. How does this become a really good peg?

To maintain the currency peg, the Hong Kong Monetary Authority (HKMA) has to buy HKD and sell USD when the currency comes under depreciation pressure and sell HKD and buy USD when the currency comes under appreciation pressure.

Depreciation pressure: The HKMA operates a currency board, which means that more than 100% of outstanding HKD is backed by USD reserves. It cannot run out of reserves and the peg could be maintained indefinitely in the face of depreciation pressure, if this was the only goal the HKMA wished to pursue.

Appreciation pressure: The HKMA can print more HKD and sell it. There is no limit to this in theory (although the Swiss National Bank chose to abandon its peg in 2015). The peg could be maintained indefinitely in the face of appreciation pressure as well.

However, as long as the HKMA is committed to maintaining the peg, it can't run an independent monetary policy suitable for Hong Kong. (The HKD is sold/bought to maintain the peg instead of being sold/bought to stimulate or rein in economy.)

If the Hong Kong economy slowed, the HKMA would maybe prefer to simulate the economy by injecting more HKD into the system (printing more money). It might not be able to do so though if the HKD was under depreciation pressure. It would actually have to BUY the HKD to maintain the peg. This is the exact opposite of what would help the economy.

At the moment, Hong Kong is importing US monetary policy by pegging its currency to the USD. This has worked as Hong Kong is a small open economy in sync with the global economic cycle and the US is a main driver of that very cycle.

Nonetheless, some speculate that the peg will eventually be abandoned in favour of a peg to the Chinese renminbi as Hong Kong is more and more linked to the Chinese economy and US monetary policy is becoming less suitable for Hong Kong.


Why doesn't Nintendo fire up the old factories and re-produce *exact* copies of many of their most popular games, controllers and consoles? Let's suppose that Nintendo announce tomorrow that they are going to create exact re-releases of the American and European NES, SNES and Nintendo 64 consoles, exactly the same as when they were originally sold, down to the packaging. As in, not even any new labels such as "Anniversary Edition" or anything. It literally is impossible to tell the difference between the new boxes and its contents from when it was originally sold.
They announce a schedule ahead of time so that they start selling these to match the time difference between each console's original release date. At least 100,000 copies of each console.
They do the same thing with the top-250 titles (in terms of commercial success) for each system, at least 100,000 copies for each game. Again, the games are released to match their relative dates when they were originally released.
Even if only collectors and hardcore nostalgics like myself buy these, wouldn't it very much make economic sense? Am I grossly overestimating the "retro market"?
It's impossible to collect/re-experience the games from my childhood today because they are insanely overpriced, or impossible to get hold of. And of course, Nintendo gets zero profits from somebody buying it second-hand (or more like 20th-hand at this point). To me, it appear as if Nintendo is allowing a lot of free money to go to waste.
Note: We are talking about Nintendo doing this properly, the way I describe it. Not some half-hearted nonsense.
I very much like the idea of buying an original Super Mario All-Stars, with "new manual smell", from Nintendo in the year 2021. They'd earn money and I'd get a copy which is impossible to tell apart from a copy I had kept in perfect condition for all these years. And the greedy auction site sellers would be stuck with worthless items.
I'm convinced that these copies would quickly sell out, and they could create more until the demand is finally met. Unless you have already spent decades paying insane prices to collect all the games, I can't see any reason why anyone would have anything against this. In fact, I wish that many other companies did the same thing with other classic products, but they never seem to.
Why not?

I am unsure whether this qualifies as economics, but it would be something that might be discussed in business school. Furthermore, the answer is almost entirely engineering. As such, I will do this briefly.

Those “old” factories are probably in the same physical space as their current factories. They would need to build new facilities.
They would need suppliers to retool to manufacture obsolete electronics.
The cost of producing the old hardware would be much greater than using a modern CPU and emulator software, where they can package the entire library in one piece.
The video output would probably be useless on most modern TV’s.
Who is going to be willing to warehouse and retail these games? If they use emulator software, they can stick the entire library in one package, vs. one package for each old game.

These engineering problems imply a need for a large market, which is uncertain. Would collectors be willing to pay the same amount for copies of old games, or would they demand the “authentic” versions?


World Inequality Database: Top 10% Income Share U.S. vs. Top 10% Average Income I want to use the U.S. data from the World Inequality Database for a VAR analysis. However, I am confused as to why the series for the top 10% income share only runs back to 1962, while the series for the top 10% average income runs back to 1913. As there is data on total national income that runs back even farther, why has the 10% income share not been computed? I looked at some of the documentation but couldn't find an answer.

https://wid.world/data/

I realize this is a very specific question. I am hoping someone closely acquainted with the data, or even someone who worked on the data, might be able to help. Thank you.

I have actually found an answer to my own question. In case anyone's interested, I found the data on the top 10%'s income share going back to 1913 on dr. Mark Frank's website - he collaborated on the construction WID. I suppose the series have gone missing / were excluded for some reason on the WID's platform?

https://www.shsu.edu/~eco_mwf/inequality.html


Removal of tax excise on producers, will increase supply? If the government removes an excise tax on producers, will their supply increase?

For example,

Price of gasoline is $2 a gallon
Producers are taxed at 50 cents per gallon by the government
Weekly demand is 400 million gallons per week at 2 dollars a gallon
Weekly supply is 300 million gallons per week at 2 dollars a gallon

In essence if a excise is removed from the producers, to make gasoline more affordable. Would their supply increase as they are paying less to produce a gallon of gasonline?

A producer will always maximize profit by setting marginal cost equal to marginal benefit. Removing an excise tax will reduce the cost of every gallon of gas, so it would indeed effectively lower the marginal cost of production. Assuming the production function isn't falling into a diseconomy of scale (where the more effort/resources you put it, the less efficiently you produce), then yes, production of gasoline should increase as a result.

Hope this helped.