Title: Microeconomics / Q1 / lecture9

Q: functional form
A: The algebraic form of a relationship between a dependent variable and regressors or explanatory variables

Q: If the theory is rejected by the data what the are 3 possibilities?
A: a) People do not really behave as the theory predicts;
b) The functional form used is too restrictive; or
c) There is something wrong with the data.

Q: concave function
A: no lone segment joining two points on the graph lies above the graph at any point.
f''(x) ≤ 0

Q: convex function
A: f''(x) is ≥ 0
no line segment joining two points on the graph lies below the graph at any point.  f(αx + (1 - α)y) ≤ αf(x) + (1 - α)f(y).

Q: representative consumer
A: a representative consumer exists if the aggregate budget share of a good i (aggregated over H households)

Q: Almost Ideal Demand System (AIDS)
A: A nice feature of the AIDS functional form is that the
standard restrictions of demand theory are simple
expressions of the parameters: