Tools of Normative Analysis(2003版).pptVIP

Tools of Positive Analysis Chapter 3 Contents Tools of normative analysis Given the enormous diversity of the government’s economic activities,some kind of general framework is needed to assess the desirability of various government actions. Without such a systematic framework,each government program ends up being evaluated on an ad hoc basis ,and achieving a coherent economic policy becomes impossible. Welfare economics Welfare economics The framework used by most public finance specialists is welfare economics ,the branch of economics theory concerned with the social desirability of alternative economics.(32) Pure Exchange Economy 1,Edgeworth Box depicts the distribution of apples and fig leaves between Adam and Eve .(34 Figure3.1 two-by-two case) Any point within the Edgeworth Box represents some allocation of apples and leaves between Adam and Eve). 2,Pareto efficient is often used as the standard for evaluating the desirability of an allocation of resources.How can reach the Pareto efficient. (36-34,Figure 3.2,3.3,3.4) 3,Pareto improvement –a reallocation of resource that makes one person better off without making anyone else worse off.(36. Figure 3.3,3.4) Contract curve 1,Contract curve reveals a whole set of Pareto efficient points in the Edgeworth Box ,and is denoted mm in figure3.7.(38) 2,Pareto efficiency requires that marginal rates of substitution be equal for all consumers,(39)In mathematical terms,the indifference curves are tangent –the slopes of the indifference curve are equal.(38) Production economy 1,The production possibility curve shows the maximum quantity of fig leaves that can be produced along with any given quantity of apples.(39 Figure3.8) 2,Marginal rate of transformation (the slope of the production possibilities curves )shows the rates at which the economy can transform apples into fig leaves.It is useful to express the marginal rate of transformation in terms of marginal cost.(40) 3,Efficiency conditions with variable produc