SLIDE 1 Scarcity and Productivity II
MPA 612: Public Management Economics January 24, 2018
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SLIDE 2 Utility, indifference, and preferences, revisited Productivity, ideas, and neverending(?) growth Income and substitution effects
Plan for today
Why does any of this even matter?
SLIDE 3
Current events
SLIDE 4
Class on Friday
SLIDE 5
Problem set 1 questions?
SLIDE 6 How do economists value time?
Hourly wages or willingness to pay
SLIDE 7
SLIDE 8 Utility, indifference, and preferences, revisited
How are all these things connected?
SLIDE 9
Utils = happiness points
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SLIDE 11 Utility functions and bundles
Inputs = Quantities of goods
SLIDE 12
2 300 4
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What combinations of inputs will produce 12 utils?
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SLIDE 15
Indifference curves show combination of bundle of goods that give the same utility
Moral of the story…
Shape of indifference curves connected directly to utility function and preferences
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Productivity, ideas, and never ending(?) growth
SLIDE 17
Why don’t people work less? Where are all the new ideas?
SLIDE 18 100 24 Hours of work per day Quantity of grain produced B 12 64 PFnew C 74 D 8 PF
SLIDE 19 Income and substitution effects
How does our consumption change with changes in price?
SLIDE 20 Type of good matters
Normal goods Inferior goods
As income increases, you buy more As income increases, you buy less
SLIDE 21 Type of scarcity matters
Limited by time Limited by income Limited by capabilities
Alexei and Angela Budgets Education & innovation
SLIDE 22 What happens when feasibility changes?
Budgets Education & innovation
SLIDE 23 What happens when feasibility
Time Changes in prices Taxes
SLIDE 24 Income effect Substitution effect
Movement to a new indifference curve because of change in income or feasibility Movement along same indifference curve because of a change in mix of inputs
SLIDE 25
Why does any of this even matter?
SLIDE 26
You all always maximize your utility by matching your MRS with your MRT given your budget constraints and finding the best combinations of goods to reach highest indifference curve, right?
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SLIDE 28
What do income and substitution effects, indifference curves, and utility have to do with the public sector? What do these economic principles have to do with public management?
