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One of the most important equations in econometrics – and in economics in general – is the equation for omitted-variable bias. This simple equation is a powerful tool for reasoning about the ways in which correlations we see in the data may differ from the causal relationships we care about. In this post, we'll begin by learning exactly what the ...
Among the most important topics covered in any college-level microeconomics course is that of how to solve constrained optimization problems, which involve maximizing or minimizing the value of some objective function – such as a utility or cost function – subject to one or more constraints – such as a budget or production target. Although these ...
For those who are not naturally math inclined, the first exposure to economics can be daunting. With a little extra work, those of us with a math aversion can grow fond of the subject. I employed some of the following strategies to get the most out of my economics courses and share them with the hope that they will help you too.
Have you just started your investment journey and wondered how much to invest? Did you follow promising strategies but still see your account in red? Are you worried about the risk that you cannot foresee in your holdings? If you are nodding along these questions, know that you are not alone. In fact, these are what professionals like quants, ...
A very important concept when it comes to thinking about markets in economics is the idea of Pareto efficiency. An allocation of resources is Pareto efficient if it is not possible to make anyone better off without making someone else worse off.
Imagine that you and a friend are going to the movies. You like comedies more than action movies, while your friend likes action movies a lot more than comedies. If you go to see a movie alone, however, you’re probably not going to have as much fun, regardless of what type of movie you see. What is the optimal behavior for each person in this ...
You may have heard in your econ class about a good’s elasticity of demand, or about “elastic” or “inelastic” goods. Consumers’ elasticity of demand is just a fancy way economists talk about how sensitive people are to changes in a good’s price.
If you are a student of economics, one of the first axioms you are instructed to adapt is that everyone should be considered a “rational actor.” What this means is that all people who take part in economic decisions and transactions are informed by self-interest and do so in a manner that maximizes their potential self-benefit. This is essential ...