, ~
Economics
Government of GDP Composition of taxation 2021 (% of total rev)
a
percentage
revenue as s
Marginal tax burden labour income Total tax burden on labor income
·
·
on
(in % of total labour costs , any earnings) (in % of total labour costs , an earnings)
Government
spending as a
percentage Composition of spending 2021
of GDP 2021 (% of total spending)
, * Positive vs. Normative economics
Positive economics
explaining 'what is
·
:
Normative economics be implemented social cost
:
explaining 'how should
government goals at lowest
important normative economics is not about
specifying 'which
goals should
government implement ?
:
-
course is normative economics,
mainly about
* Welfare
Individuals derive
utility u(x) from vector of which include
a
goods X
may
:
,
3
>
-
consumption C
>
-
leisure l
>
-
public goods G Vector can be written as : X = C, C ,
G ,
F ,
S
, .
environmental
quality E
>
-
S
safety
>
-
>
-
any other scarce
commodity Y
derived individual
Individual welfare :
utility a from scarce
goods of X of a particular
-
utility & individual welfare are
synonymously used
* Old Welfare Economics
naues :
John Stuart Mill , Jeremy Bentham , Alfred Marshall , Francis Edgeworth, Arthur Pigou
Aidea :
utility is a metric for the
economic-wellbeing of individuals
* Cardinal
utility -
utility or individual welfare is quantifiable metric
, Interpersonal utility or welfare economics Since utility can be measured it can be compared
-
,
:
between individuals
1. Compute exactly how well off individuals are with bundlex for any X for all possibilities
.
2 Compute how
exactly how much more
utility person n has from bundle Xn , than person
M from bundle Xm for all n & m from set of individuals ,
* Is old welfare economics
egalitarian ?
u)I
-Often its assumed that
everybody has the same
utility function ,
but its not
necessary
- if Cardinal of individual welfare
utility is : it produces a number even if the function
u () are diff for all n,
In economics its assumed that
marginal utility of income declines w/ income .
· Modern interpretations : 1 consumption smoothing (saving) ,
2 risk aversion (insurance
-If everybody is the same & derives utility from only consumption (or income) C ,
so that use ,
social welfare is
only maximized if
everybody has some
marginal utility of consumption (or income
is
=>
Hu the SAME for everyone !, Iis the same for
everyone (Edgeworth)
! traditional welfare economics had an
egalitarian flavour
a
egalitarian believing equality along
:
people
* New welfare economics
Key naves Vilfredo Pareto , Lionel Robbins Abram Bergson Paul Samuelson Johan de Villiers Graaff
-
:
, ,
,
-
Main idea
Utility is a tautology' that equates observed economic behavior w/the object that
·
:
-
& statement that is true
by definition
individuals are
maximizing
individual welfare just
* Ordinal
utility -
utility or
gives a preference ordering .
indicate
utility rankings assigningnumerical
- means that relative
desirability of diff cons. bundles rather than vasis
Economics
Government of GDP Composition of taxation 2021 (% of total rev)
a
percentage
revenue as s
Marginal tax burden labour income Total tax burden on labor income
·
·
on
(in % of total labour costs , any earnings) (in % of total labour costs , an earnings)
Government
spending as a
percentage Composition of spending 2021
of GDP 2021 (% of total spending)
, * Positive vs. Normative economics
Positive economics
explaining 'what is
·
:
Normative economics be implemented social cost
:
explaining 'how should
government goals at lowest
important normative economics is not about
specifying 'which
goals should
government implement ?
:
-
course is normative economics,
mainly about
* Welfare
Individuals derive
utility u(x) from vector of which include
a
goods X
may
:
,
3
>
-
consumption C
>
-
leisure l
>
-
public goods G Vector can be written as : X = C, C ,
G ,
F ,
S
, .
environmental
quality E
>
-
S
safety
>
-
>
-
any other scarce
commodity Y
derived individual
Individual welfare :
utility a from scarce
goods of X of a particular
-
utility & individual welfare are
synonymously used
* Old Welfare Economics
naues :
John Stuart Mill , Jeremy Bentham , Alfred Marshall , Francis Edgeworth, Arthur Pigou
Aidea :
utility is a metric for the
economic-wellbeing of individuals
* Cardinal
utility -
utility or individual welfare is quantifiable metric
, Interpersonal utility or welfare economics Since utility can be measured it can be compared
-
,
:
between individuals
1. Compute exactly how well off individuals are with bundlex for any X for all possibilities
.
2 Compute how
exactly how much more
utility person n has from bundle Xn , than person
M from bundle Xm for all n & m from set of individuals ,
* Is old welfare economics
egalitarian ?
u)I
-Often its assumed that
everybody has the same
utility function ,
but its not
necessary
- if Cardinal of individual welfare
utility is : it produces a number even if the function
u () are diff for all n,
In economics its assumed that
marginal utility of income declines w/ income .
· Modern interpretations : 1 consumption smoothing (saving) ,
2 risk aversion (insurance
-If everybody is the same & derives utility from only consumption (or income) C ,
so that use ,
social welfare is
only maximized if
everybody has some
marginal utility of consumption (or income
is
=>
Hu the SAME for everyone !, Iis the same for
everyone (Edgeworth)
! traditional welfare economics had an
egalitarian flavour
a
egalitarian believing equality along
:
people
* New welfare economics
Key naves Vilfredo Pareto , Lionel Robbins Abram Bergson Paul Samuelson Johan de Villiers Graaff
-
:
, ,
,
-
Main idea
Utility is a tautology' that equates observed economic behavior w/the object that
·
:
-
& statement that is true
by definition
individuals are
maximizing
individual welfare just
* Ordinal
utility -
utility or
gives a preference ordering .
indicate
utility rankings assigningnumerical
- means that relative
desirability of diff cons. bundles rather than vasis
