TEST 1 + Final Flashcards
(38 cards)
What does the derivative of a function represent?
slope of the tangent line to f(x) at specific point
Covariance is?
comovement between two variables
measures wheter they change is similar or opposite directions
p-value
describes the probability that in another similiar experiment you would observe the same outcome given H0 is true
descibe instrumental variable approach
when you have a seperate variable thats associated w/ the independent variables but not associated w/ dependent variable
Regression Dicontinuity approach
approach that uses a distinct cutoff to compare otherwise similar groups to identify causal effect of treatment/intervention
natural experiment difference in differences approach
approach studies differential effect of a treatment on a “treatment group” and a “control group”
what is omitted variable bias?
occurs when significant independent/explanatory variables of the dependent variable are not included in the model
2 different types of omitted variable bias
- independent variables that are uncorrelated with our already included independent variables (effects error term)
- independent variables that are correlated with our already included independent variables
(beta hat will be biased)
3 main categories of risk preference
- risk loving
- risk neutral
- risk adverse
breif overview of the planet money podcast, What Causes What
focuses on the distinction between correlation and causation
talks about real life examples life schooling, crime, and health
log-level model
estimates a constant percentage change relationship between y & x
log-level model might be good when we have a non-linear relationship between the dependent variable and the independent variables
Constant Relative Risk Aversion(CRRA)
what is value of w for each risk preference?
0 < w <= 1 (risk adverse)
w=0 (risk neutral)
-1 <= w < 0 (risk loving)
TR maximization
what is value of ED (elasticity of demand) when TR is maximized?
ED= -1
basically what is the approach for calculating comparitive statics ?
calculate EP*,x and EQ*,x
wrt some variable x that will be named, like the price of the other good
formula for Arrow Pratt measure of risk aversion?
r(I)=
r(I)= - U’’(I) / U’(I)
*the larger the number, the more risk adverse an individual or consumer group is relative to a group with a lower Arrow-Pratt risk aversion measure
What does the Arrow Pratt Measure of Risk Aversion tell us ?
consumers or companies risk preferences relative to eachother –> the larger the number, the more risk adverse an individual or consumer group is relative to a group with a lower Arrow-Pratt risk measure
what is the value based approach?
choose inputs that maximize outputs/revenues given a set of cost constraints
what is the cost based approach?
maximize profit by minimizing cost
do the value based and cost based approach yield different profit maximizing conditons?
no
what will HOD =
if there are constant returns to scale?
HOD=1
*if HOD=5, production will increase by 5 units for every unit of input
income elasticity of demand
what are the elasticity values for inferior,normal, and luxury goods
inferior goods: Eq,i < 0 as i increases,QD decreases
normal goods: Eq,i > 0 as i increases, QD increases
luxury goods: Eq,i > 1 as i increases, QD increases at a higher rate
cross price elasticity of demand
what are the elasticity values of goods that are complements, unrelated, and substitutes ?
Complements: EQc,Pk < 0 as Pk increases, QD decreases
unrelated: EQc,Pk = 0 as Pk increases, no change in Qc
substitutes: EQc,Pk > 0 as Pk increases, Qc increases
true or false
in certain portions of the classic production function, it is possible for quanity produced to decrease as additional inputs are needed
true
think… w/ too many people working, output could be decreased
market case
under market case, producers objective is to maximize profits, what is the condition at which this objective is satisfied?
slope of π = slope of PPF
or
MRPT= - P2 / P1
mathmatically:
max π = P1Q1 + P2Q2
s.t. Q1 = f(Q2) - PPF
