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Money flexibility and optimal consumption-leisure choice under price dispersion

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  • Malakhov, Sergey

Abstract

The synthesis of the G.Sigler’s rule of the optimal search with the classical individual labor supply model enlarges the understanding of the phenomenon of money flexibility. The constraints of the search model makes the Lagrangian multiplier equal to the marginal utility of the wage rate and establish the correspondence between the purchase price elasticity of the marginal utility of consumption expenditures, the wage rate elasticity of the marginal utility of money, and the wage rate elasticity of purchase prices. This correspondence can review the “leisure model” of behavior as well as the Veblen effect. The phenomenon of the sunk costs sensitivity also becomes more understandable.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 45197.

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Date of creation: 07 Mar 2013
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Handle: RePEc:pra:mprapa:45197

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Keywords: money flexibility; consumption leisure choice; search; Veblen effect;

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References

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  1. Malakhov, Sergey, 2012. "Satisficing decision procedure and optimal consumption-leisure choice," MPRA Paper 38964, University Library of Munich, Germany.
  2. Peter Diamond, 1985. "Consumer Differences and Prices in a Search Model," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 404, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Mark Aguiar & Erik Hurst, 2007. "Measuring Trends in Leisure: The Allocation of Time over Five Decades," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(3), pages 969-1006, 08.
  4. Malakhov, Sergey, 2012. "Veblen effect, search for status goods, and negative utility of conspicuous leisure," MPRA Paper 40809, University Library of Munich, Germany.
  5. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, Elsevier, vol. 3(2), pages 156-168, June.
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Cited by:
  1. Malakhov, Sergey, 2014. "Sunk costs of consumer search: economic rationality of satisficing decision," MPRA Paper 53493, University Library of Munich, Germany.
  2. Malakhov, Sergey, 2014. "Money flexibility, price elasticity, and elasticity of marginal utility of consumption," MPRA Paper 55928, University Library of Munich, Germany.
  3. Malakhov, Sergey, 2014. "Slutsky equation and negative elasticity of labor supply: behavioral bias or optimal consumption-leisure choice?," MPRA Paper 53871, University Library of Munich, Germany.
  4. Malakhov, Sergey, 2013. "Эффект Веблена, Предельная Полезность Денег И Денежная Иллюзия
    [Veblen effect, marginal utility of money, and money illusion]
    ," MPRA Paper 51014, University Library of Munich, Germany.

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