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The Ramsey problem, or Ramsey pricing, or Ramsey–Boiteux pricing, is a second-best policy problem concerning what prices a public monopoly should charge for the various products it sells in order to maximize social welfare (the sum of producer and consumer surplus) while earning enough revenue to cover its fixed costs.
In social choice and operations research, the utilitarian rule (also called the max-sum rule) is a rule saying that, among all possible alternatives, society should pick the alternative which maximizes the sum of the utilities of all individuals in society.
Robert Hall was the first to derive the effects of rational expectations for consumption. His theory states that if Milton Friedman’s permanent income hypothesis is correct, which in short says current income should be viewed as the sum of permanent income and transitory income and that consumption depends primarily on permanent income, and if consumers have rational expectations, then any ...
The ultimatum game is a game that has become a popular instrument of economic experiments. An early description is by Nobel laureate John Harsanyi in 1961. [1] One player, the proposer, is endowed with a sum of money. The proposer is tasked with splitting it with another player, the responder (who knows what the total sum is).
Foster's rule, the island rule, or the island effect states that members of a species get smaller or bigger depending on the resources available in the environment. [ 28 ] [ 29 ] [ 30 ] The rule was first stated by J. Bristol Foster in 1964 in the journal Nature , in an article titled "The evolution of mammals on islands".
Nash proved that every finite n-player, non-zero-sum (not just two-player zero-sum) non-cooperative game has what is now known as a Nash equilibrium in mixed strategies. Game theory experienced a flurry of activity in the 1950s, during which the concepts of the core , the extensive form game , fictitious play , repeated games , and the Shapley ...
An economic theory that defines wealth by the amount of precious metals owned. [48] business cycle. Also called the economic cycle or trade cycle. The downward and upward movement of gross domestic product (GDP) around its long-term growth trend. [49] The length of a business cycle is the period of time containing a single boom and contraction ...
Walras's law is a consequence of finite budgets. If a consumer spends more on good A then they must spend and therefore demand less of good B, reducing B's price. The sum of the values of excess demands across all markets must equal zero, whether or not the economy is in a general equilibrium.