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首页 Public Finance ch02.pptx

Public Finance ch02.pptx

Public Finance ch02.pptx

上传者: 桔雨_聆夕 2017-09-06 评分 0 0 0 0 0 0 暂无简介 简介 举报

简介:本文档为《Public Finance ch02pptx》,可适用于经济金融领域,主题内容包含CopyrightcopyWorthPublishersConstrainedUtilityMaximizationPuttingtheToolst符等。

CopyrightcopyWorthPublishersConstrainedUtilityMaximizationPuttingtheToolstoWork:TANFandLaborSupplyAmongSingleMothersEquilibriumandSocialWelfareWelfareImplicationsofBenefitReductions:TheTANFExampleContinuedConclusionTheoreticalToolsofPublicFinanceHeatherLueaandDanSacksPREPAREDBYThischaptercoversthetheoreticaltoolsofpublicfinanceTheoreticaltools:ThesetoftoolsdesignedtounderstandthemechanicsbehindeconomicdecisionmakingEmpiricaltools:ThesetoftoolsdesignedtoanalyzedataandanswerquestionsraisedbytheoreticalanalysisTheoreticalToolsofPublicFinanceWecanillustratehowconsumersarepresumedtomakechoicesinfoursteps:First,wediscusshowtomodelpreferencesgraphicallyThen,weshowhowtotakethisgraphicalmodelofpreferencesandrepresentitmathematicallywithautilityfunctionNext,wemodelthebudgetconstraintsthatindividualsfaceFinally,weshowhowindividualsmaximizetheirutility(makethemselvesaswelloffaspossible)giventheirbudgetconstraintsIntroduction:HowConsumersMakeChoicesUtilityfunction:Amathematicalfunctionrepresentinganindividualrsquossetofpreferences,whichtranslatesherwellbeingfromdifferentconsumptionbundlesintounitsthatcanbecomparedinordertodeterminechoiceConstrainedutilitymaximization:Theprocessofmaximizingthewellbeing(utility)ofanindividual,subjecttoherresources(budgetconstraint)Models:MathematicalorgraphicalrepresentationsofrealityConstrainedUtilityMaximizationIndifferencecurve:AgraphicalrepresentationofallbundlesofgoodsthatmakeanindividualequallywelloffBecausethesebundleshaveequalutility,anindividualisindifferentastowhichbundleheconsumesIndifferencecurveshavetwokeyproperties:ConsumerspreferhigherindifferencecurvesIndifferencecurvesarealwaysdownwardslopingPreferencesandIndifferenceCurvesPreferencesandIndifferenceCurvesConsumerisindifferentbetweenAandBCispreferredtoAorBPreferencesandIndifferenceCurvesConsumerisindifferentbetweenAandBCispreferredtoAorBUtilityMappingofPreferencesUtilityMappingofPreferences:ExampleMarginalUtilityMarginalUtility:GraphicalRepresentationWitheachadditionalmovieconsumed,utilityincreasesbutbyeversmalleramountsMarginalRateofSubstitutionMarginalRateofSubstitutionAsAndreamovesdowntheindifferencecurve,gettingmoremoviesandfewercakes,themarginalutilityofcakesrises,andthemarginalutilityofmoviesfalls,loweringtheMRSBudgetConstraintsBudgetConstraintsTheslopeofthebudgetconstraintistherateatwhichshecantradecakesformoviesinthemarketplace,PMPC=ndashfrasl=ndashfraslPuttingItAllTogether:ConstrainedChoicePuttingItAllTogether:ConstrainedChoicePuttingItAllTogether:ConstrainedChoiceWheneveraconsumerisatapointwheretheindifferencecurveandthebudgetconstraintarenottangent,shecanmakeherselfbetteroffbymovingtoapointoftangencyMaximizingutilitytellsushowmanygoodsapersonbuysatagivenpriceWhathappenswhenwechangethepricesSubstitutioneffect:Holdingutilityconstant,arelativeriseinthepriceofagoodwillalwayscauseanindividualtochooselessofthatgoodIncomeeffect:AriseinthepriceofagoodwilltypicallycauseanindividualtochooselessofallgoodsbecauseherincomecanpurchaselessthanbeforeTheEffectsofPriceChanges:SubstitutionandIncomeEffectsTheEffectsofPriceChanges:SubstitutionandIncomeEffectsThesubstitutioneffectholdsutilityconstantbutchangestheincomewhilereflectingthechangeinrelativepricesHowdochangesinincomeaffectdemandNormalgoods:GoodsforwhichdemandincreasesasincomerisesInferiorgoods:GoodsforwhichdemandfallsasincomerisesTheEffectsofPriceChanges:SubstitutionandIncomeEffectsTheTANFprogramwascreatedinandprovidesamonthlysupportchecktofamilieswithincomesbelowathresholdlevelthatissetbyeachstateSupposethatJoelleisasinglemotherwhospendsallofherearningsandTANFbenefitsonfoodforherselfandherchildrenByworkingmorehours,shecanearnmoremoneyforfood,butshehaslesstimeathomewithherchildrenandforleisureShewouldprefertimeathometotimeatwork(leisureisanormalgood)Withthesepreferences,moreworkmakesJoelleworseoff,butitallowshertobuymorefoodHowdoesJoelledecideontheoptimalamountoflabortosupplyPuttingtheToolstoWork:TANFandLaborSupplyAmongSingleMothersPuttingtheToolstoWork:TANFandLaborSupplyAmongSingleMothers:IdentifyingtheBudgetConstraintIfshetakesnoleisure,shecanhaveconsumptionof$,peryearbutifshetakes,hoursofleisure,herconsumptionfallstoThisisrepresentedbythebudgetconstraintwithaslopeofndash,therelativepriceofleisureintermsoffoodconsumptionPuttingtheToolstoWork:TANFandLaborSupplyAmongSingleMothers:IdentifyingtheBudgetConstraintPointDmarkstheendofthenewbudgetconstraintandprovidesanewoption:shecanhave,hoursofleisureand$,infoodconsumptionbecauseofthe$,TANFbenefitguaranteePuttingtheToolstoWork:TANFandLaborSupplyAmongSingleMothers:EffectsofChangesinBenefitGuaranteeFoodconsumption(dollars)$,,Leisure(hours)ABCSlope=minusSlope=minus,,,DFE,,,Iftheguaranteefallsto$,,thebudgetconstraint(AEF)doesnrsquotflattenuntilshetakesmorethan,hoursofleisurenow,with,hoursofleisure,herconsumptionisonly$,atpointFFoodconsumption(dollars)$,,Leisure(hours),,,,,,HowLargeWilltheLaborSupplyResponseBeAB(,hours,$,)(,hours,$,)ThesubstitutioneffectholdsutilityconstantbutchangesrelativepricesThesizeoftheresponsedependson:HowmuchwasearnedbeforethebenefitchangeThesizeoftheincomeandsubstitutioneffectsonherleisurelabordecisionLetrsquosconsidertwoindividuals:IndividualvaluesleisuremorehighlyrelativetoconsumptionthanIndividualdoesTANFandLaborSupplyAmongSingleMothers:HowLargeWilltheLaborSupplyResponseBeWhentheTANFguaranteeis$,,theoptimalchoiceistotake,hoursofleisureandconsume$,(atpointA)Whentheguaranteefallsto$,,shereducesherleisureto,hours,andherconsumptionfallsto$,(atpointB)HowLargeWilltheLaborSupplyResponseBeFoodconsumption(dollars)$,,Leisure(hours),,,,,,HowLargeWilltheLaborSupplyResponseBeBA(,hours,$,)(,hours,$,)Becauseleisureisvaluedmorehighlyrelativetoconsumptionforthisindividual,shechooses,hoursofleisureregardlessoftheTANFguaranteeThereductioninguaranteethereforelowersherconsumptionfrom$,(atpointA)to$,(atpointB)HowdomarketsdeterminewhatgetsproducedDotheyproducetherightamountMarket:ThearenainwhichdemandersandsuppliersinteractMarketequilibrium:Thecombinationofpriceandquantitythatsatisfiesbothdemandandsupply,determinedbytheinteractionofthesupplyanddemandcurvesWelfareeconomics:Thestudyofthedeterminantsofwellbeing,orwelfare,insocietyEquilibriumandSocialWelfareHowmuchofagooddopeoplewanttobuyatthemarketpriceDemandcurve:AcurveshowingthequantityofagooddemandedbyindividualsateachpriceObtainedbyfindingtheutilitymaximizingbundleateachpriceDemandCurvesDemandCurvesTherelationshipbetweenthepriceandutilitymaximizingchoicescanbeusedtotraceoutthedemandcurveformovies,DMElasticityofDemandElasticitiesofdemand:Elasticitiesofdemandareoftennegative:QuantitydemandedfallsaspricerisesElasticitiesofdemandaretypicallynotconstantalongademandcurveTypically,achangeinthepriceofonegoodwillaffectdemandforothergoodsaswellTheeffectofonegoodrsquospricesonthedemandforanothergoodisthecrosspriceelasticityElasticityofDemandPerfectlyinelasticandperfectlyelasticdemand:Whentheelasticityofdemandiszero,thedemandcurveisperfectlyinelastic,inwhichcasethedemandcurveisvertical,andquantitydemanddoesnotchangewhenpricerisesWhentheelasticityofdemandisinfinite,thedemandcurveisperfectlyelastic,inwhichcasethedemandcurveishorizontal,andquantitydemandedchangesinfinitelyforevenaverysmallchangeinpriceElasticityofDemandSupplyCurvesProfitMaximizationHowdofirmsdecidehowmuchtoproduceMarginalproductivity:Theimpactofaunitchangeinanyinput,holdingotherinputsconstant,onthefirmrsquosoutputMarginalcost:TheincrementalcosttoafirmofproducingonemoreunitofagoodFirmschoosequantitiestomaximizeprofits,thedifferencebetweenrevenuesandcostsProfitismaximizedwhenmarketpriceequalsmarginalcostEquilibriumToundertakewelfareanalysisweneedtoanalyzeatthemarketlevel:ThedemandsofeachindividualwhoisdemandinggoodsinthismarketisaddedtoobtainmarketdemandThesuppliesofeachfirmthatissupplyinggoodsinthemarketisaddedtogetmarketsupplyThemarketlevelsupplyanddemandcurvesinteracttodeterminethemarketequilibriumSocialefficiencyismaximizedatthecompetitiveequilibriumEquilibrium:GraphicalRepresentationEquilibriumisthepriceandquantitypairthatwillsatisfybothdemandandsupplySocialEfficiencySocialefficiencyrepresentsthenetgainstosocietyfromalltradesthataremadeinamarket,anditconsistsofthesumoftwocomponents:consumerandproducersurplusAlsocalledtotalsocialsurplusConsumersurplus:Thebenefitthatconsumersderivefromconsumingagood,aboveandbeyondthepricetheypaidforthegoodProducersurplus:Thebenefitthatproducersderivefromsellingagood,aboveandbeyondthecostofproducingthatgoodConsumerSurplus:GraphicalRepresentationConsumersurplusistheareaunderthedemandcurveandaboveequilibriumpriceDemand=willingnesstopayProducerSurplus:GraphicalRepresentationProducersurplusistheareaabovethesupplycurveandbelowequilibriumpriceSupply=marginalcostSocialSurplus:GraphicalRepresentationSocialsurplusforthismarketisthesumoftheshadedareasABCDECompetitiveEquilibriumMaximizesSocialEfficiencyFirstFundamentalTheoremofWelfareEconomics:Thecompetitiveequilibrium,wheresupplyequalsdemand,maximizessocialefficiencyDeadweightloss:ThereductioninsocialefficiencyfrompreventingtradesforwhichbenefitsexceedcostsQuickhint:DeadweightlossisatrianglethatpointstowardtheequilibriumpriceandgrowsawayfromitFromSocialEfficiencytoSocialWelfare:TheRoleofEquitySecondFundamentalTheoremofWelfareEconomics:SocietycanattainanyefficientoutcomebysuitablyredistributingresourcesamongindividualsandthenallowingthemtofreelytradeDifficultinpracticetoredistributelikethisSocialwelfare:ThelevelofwellbeinginsocietyDeterminedbybothhowmuchgetsproducedandhowitisdistributedEquityndashefficiencytradeoff:ThechoicesocietymustmakebetweenthetotalsizeoftheeconomicpieanditsdistributionamongindividualsSocialWelfareFunctionsChoosinganEquityCriterionSocialwelfarefunctionsreflectdifferentpossibleequitycriteria,including:Commodityegalitarianism:Theprinciplethatsocietyshouldensurethatindividualsmeetasetofbasicneeds,butthatbeyondthatpointincomedistributionisirrelevantEqualityofopportunity:TheprinciplethatsocietyshouldensurethatallindividualshaveequalopportunitiesforsuccessbutnotfocusontheoutcomesofchoicesmadeWelfareImplicationsofBenefitReductions:TheTANFExampleContinued:EfficiencyEffectsonefficiency:WithoutTANF,thelabormarketisincompetitiveWhenTANFisintroduced,laborsupplyfalls,whichcreatesadeadweightlossWhenTANFbenefitsarereduced,supplyincreasesandsocialefficiencyrisesWelfareImplicationsofBenefitReductions:TheTANFExampleContinued:EfficiencyWhenTANFbenefitsarereduced,supplyincreasestoS,andsocialefficiencyrisesbyABCIncreasingTANFbenefitsreducesefficiencyIsthisagoodthingGovernmentshaveprogramssuchasTANFbecausetheircitizenscarenotonlyaboutefficiency,butalsoaboutequityWhilereducingTANFbenefitsmayincreasesocialefficiency,itneednotincreasesocialwelfareOverallconclusiondependsonsocialwelfarefunctionWelfareImplicationsofBenefitReductions:TheTANFExampleContinued:EquityThischapterhasshownboththepowerandthelimitationsofthetheoreticaltoolsofeconomicsUsingtheoreticaltools,weareabletoaddresscomplicatedquestionssuchashowTANFbenefitsaffectthelaborsupplyofsinglemothers,andtheimplicationsofthatresponseforsocialwelfareOntheotherhand,wehavebeenveryimpreciseaboutthepotentialsizeofthechangesthatoccurinresponsetochangesinTANFbenefitsConclusions

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