100%(5)5 out of 5 people found this document helpful
This preview shows page 1 - 6 out of 35 pages.
Summary: book " Public Finance ", Rosen and Gayer, Lecture(s) Chapters 3 to 6, 8, 12, 14, 15, 16, 18, 20, 22Public Finance (Rijksuniversiteit Groningen)Verspreiden niet toegestaan | Gedownload door Sitwat Hashmi ([email protected])lOMoARcPSD
Public finance summary Chapter 3 – Tools of normative analysis welfare economics:the branch of economic theory concerned with the social desirability of alternative economic states basic concepts: 1) efficiency °can we improve overall welfare? 2) equity °is it fair? pareto efficiency: nobody can be made better off without making someone worse off pareto improvement: a reallocation of resources that makes at least one person better off without making anyone else worse off contract curve: the locus of all Pareto efficient points production possibilities curve: a graph that shows the maximum quantity of one output that can be produced, given the amount of the other output marginal rate of transformation (MRT): the rate at which the economy can transform one good into another good; it is the absolute value of the slope of the production possibilities frontier marginal cost: the incremental cost of producing one more unit of output utility possibilities curve:a graph showing the maximum amount of one person’s utility given each level of utility attained by the other person Verspreiden niet toegestaan | Gedownload door Sitwat Hashmi ([email protected])lOMoARcPSD
Pareto-efficient allocationof resources if: - perfect competition - identical prices - no market power - existence of markets - everything can be traded 1stPareto efficiency condition: MRSadam= MRSeve 2nd Pareto efficiency condition: MRSaf= MRTaf With well-functioning markets, prices reflect both: - relative costs of production (MRT), and - relative attractiveness of goods (MRS) social welfare function: a function reflecting society’s views on how the utilities of its members affect the well-being of society as a whole asymmetric information: a situation in which one party engaged in an economic transaction has better information about the good or service traded than the other party externality:a cost or benefit that occurs when the activity of one entity directly affects the welfare of another in a way that is outside the market mechanism merit good:a commodity that ought to be provided even if people do not demand it (operas, concerts) Verspreiden niet toegestaan | Gedownload door Sitwat Hashmi ([email protected])lOMoARcPSD
Correct market failures:- firms have market power - firms set their own prices (P > MC) - a market does not exist, because of: - asymmetric information - lack of property rights - public goods Verspreiden niet toegestaan | Gedownload door Sitwat Hashmi ([email protected])lOMoARcPSD
Chapter 4 – Public goods A pure public goodhas both these properties: - consumption is non-rival > cost of use by additional person is zero > use by one person does not prohibit use by someone else - consumption is non-excludable > everyone consumes it > everyone consumes the same quantity > whether you want to or not °
You've reached the end of your free preview.
Want to read all 35 pages?
Verspreiden niet toegestaan, Sitwat Hashmi, door Sitwat Hashmi, Gedownload door Sitwat