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Category: Micro-Consumption
A.14 Revealed preference
https://youtu.be/wRce8gItjSw Description This video explains how revealed preference theory works. We'll learn how to use both the Weak and Strong Axioms of Revealed Preference, in order to derive a utility function from consumer behaviour. - Revealed preference theory is attributable to Paul Samuelson, who developed the concept in his article “Consumption Theory in Terms of Revealed Preference”, in 1948. Consumer theory depends on the existence of preferences, which materialise into util...
https://youtu.be/wRce8gItjSw Description This video explains how revealed preference theory works. We'll learn how to use both the Weak and Strong Axioms of Revealed Preference, in order to der...
A.13 Characteristics demand
Description This video helps understand how characteristics demand works. We start with a simple example, using just two brands. Then, we'll see what happens when we allow for convex demand curves. Finally, we'll see how a new brand might change the analysis. - Characteristics demand theory states that consumers derive utility not from the actual contents of the basket but from the characteristics of the goods in it. This theory was developed by Kelvin Lancaster in 1966 in his paper “A Ne...
Description This video helps understand how characteristics demand works. We start with a simple example, using just two brands. Then, we'll see what happens when we allow for convex demand cur...
A.12 Paasche index
Description This video helps understand how the Paasche index and the equivalent variation work. We start by analyzing the Paasche index analytically, then use a graphical representation to explain what the equivalent variation is. - Price indices are used to monitor changes in prices levels over time. This is useful when separating real income from nominal income, as inflation is a drain on purchasing power. The two most basic indices are the Laspeyres index (named after Etienne Laspeyre...
Description This video helps understand how the Paasche index and the equivalent variation work. We start by analyzing the Paasche index analytically, then use a graphical representation to exp...
A.11 Laspeyres index
Description This video helps understand how the Laspeyres index and the compensated variation work. We start by analyzing the Laspeyres index analytically, then use a graphical representation to explain what the compensated variation is. - Price indices are used to monitor changes in prices levels over time. This is useful when separating real income from nominal income, as inflation is a drain on purchasing power. The two most basic indices are the Laspeyres index (named after Etienne La...
Description This video helps understand how the Laspeyres index and the compensated variation work. We start by analyzing the Laspeyres index analytically, then use a graphical representation t...
A.10 Marshallian and Hicksian demand curves
Description This video explains how to build the Marshallian and Hicksian demand curves. We analyse Hicks' decomposition of the income and substitution effect, from which we derive both demand curves. - Marshallian and Hicksian demands stem from two ways of looking at the same problem - how to obtain the utility we crave with the budget we have. Consumption duality expresses this problem as two sides of the same coin: keeping our budget fixed and maximising utility (primal demand, which l...
Description This video explains how to build the Marshallian and Hicksian demand curves. We analyse Hicks' decomposition of the income and substitution effect, from which we derive both demand ...
A.9 Income and substitution effects
Description This video explains what the income and substitution effects are, and how to analyse them in order to understand why we buy more goods when their price goes down. - Generally, if the price of something goes down, we buy more of it. This is down to two effects: Income effect: because it’s less expensive, we have more purchasing power because it is a smaller drain on our personal finances. Substitution effect: because it offers more utility per unit of money, other alternatives ...
Description This video explains what the income and substitution effects are, and how to analyse them in order to understand why we buy more goods when their price goes down. - Generally, if th...
A.8 Consumption duality
Description This video shows how useful a good understanding of consumption duality can be. Starting with utility maximisation and cost minimisation, this video explores everything you need to understand about consumer theory. We also explain formulas such as Roy's identity or the Hotelling/Shephard lemma. - There are two ways to solve a consumer’s choice problem. That is, we can either fix a budget and obtain the maximum utility from it (primal demand) or set a level of utility we want t...
Description This video shows how useful a good understanding of consumption duality can be. Starting with utility maximisation and cost minimisation, this video explores everything you need to ...
A.7 Cost minimisation
Description This video explains how cost minimisation works, both from the analytical and graphical points of view. We start analysing cost minimisation as the optimisation problem it is, followed by a graphical analysis of the optimum point of consumption. - Cost minimisation is a way of solving the optimisation problem regarding the utility function and the budget constraint, even though the most common way of doing this is by means of utility maximisation. If we think about it, we don’...
Description This video explains how cost minimisation works, both from the analytical and graphical points of view. We start analysing cost minimisation as the optimisation problem it is, follo...
A.6 Utility maximisation
Description This video explains how utility maximisation works, both from the analytical and graphical points of view. We start analysing utility maximisation as the optimisation problem it is, followed by a graphical analysis of the optimum point of consumption. - Utility maximisation must be seen as an optimisation problem regarding the utility function and the budget constraint. An individual is faced with the following problem: faced with a set of choices, or baskets of goods, and a f...
Description This video explains how utility maximisation works, both from the analytical and graphical points of view. We start analysing utility maximisation as the optimisation problem it is,...
A.5 Budget constraint
Description This video explains the very basics of the budget constraint, which is of great importance when dealing with consumption duality. We start by analysing its components, then explain how to draw the budget line and lastly we focus on different factors that can change its shape. - Consumer behaviour is a maximisation problem. It means making the most of our limited resources to maximise our utility. As consumers are insatiable, and utility functions grow with quantity, the only t...
Description This video explains the very basics of the budget constraint, which is of great importance when dealing with consumption duality. We start by analysing its components, then explain ...
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