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Convexity is an important topic in economics. [1] In the Arrow–Debreu model of general economic equilibrium, agents have convex budget sets and convex preferences: At equilibrium prices, the budget hyperplane supports the best attainable indifference curve. [2] The profit function is the convex conjugate of the cost function.
Demand with many consumers If a preference set is non-convex, then some prices determine a budget-line that supports two separate optimal-baskets. For example, we can imagine that, for zoos, a lion costs as much as an eagle, and further that a zoo's budget suffices for one eagle or one lion. We can suppose also that a zoo-keeper views either animal as equally valuable. In this case, the zoo ...
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A function with this property is said to be concave concave function A function of two variables for which the line segment between any two points on the function lies entirely below the curve representing the function (the function is convex when the line segment lies above the function). . An implication of concavity (and its algebraic ...
In mathematical finance, convexity refers to non-linearities in a financial model. In other words, if the price of an underlying variable changes, the price of an output does not change linearly, but depends on the second derivative (or, loosely speaking, higher-order terms ) of the modeling function.
Jan 1, 2017 · First Online: 01 January 2017. 153 Accesses. Abstract. Convexity is the modern expression of the classical law of diminishing returns, which was prominent in political economy from Malthus and Ricardo through the neoclassical revolution.
- Lawrence E. Blume
Jan 1, 2016 · However, it is not so rash to argue that the role of convexity in economics is rather well understood, that as a result its use has reached a certain level of maturity, and that diminishing returns (convexity again!) have probably set in. Almost certainly, major improvements in this area of economic theory must wait on the creation of a ...
Convexity is an important topic in economics. In the Arrow–Debreu model of general economic equilibrium, agents have convex budget sets and convex preferences: At equilibrium prices, the budget hyperplane supports the best attainable indifference curve.
