EC201 Microeconomic Principles I Mock Exam 1 - Lent Term 微观经济学原理考试代写 Instructions to candidates This paper contains 1 question. The long question carries 50 marks. Your answers to...View details
EC201 Problem Set 4: Price changes and Welfare
价格变化和福利代写 Consumer Price Index (CPI) Discussion The Covid-19 pandemic changed consumer spending as some goods and services were unavailable during periods
Consumer Price Index (CPI) Discussion 价格变化和福利代写
The Covid-19 pandemic changed consumer spending as some goods and services were unavailable during periods of lockdown (e.g. bars and restaurants, gyms, hairdressers and barbers, theatres, sporting events, travel etc). In class we will discuss the following questions; please prepare for class by exploring the readings below.
(a) What are the implications for the CPI and our interpretation of it (both in 2020 and 2021)?
(b) Should we change the weights of the CPI in light of the pandemic?
Blundell, R., Griffith, R., Levell, P., &O’Connell, M.(2020). Could COVID-19 Infect the Consumer Prices Index?. Fiscal Studies, 41(2), 357-361.
Cavallo, A. (2020). Inflation with Covid consumption baskets (No. w27352). National Bureau of Economic Research.
Welfare measures for an inferior good 价格变化和福利代写
In the lecture we examined the welfare effects of an increase in the price of a normal good and introduced the concepts of compensating variation (CV) and equivalent variation (EV).
By comparing areas, we found that EV < change in consumer surplus < CV.
(a) Follow the same steps for the case where good 1 is an inferior (but not Giffen) good and show that CV < change in consumer surplus < EV.
[Hint: start from the indifference map below and construct the diagram with x1(p1,p2,m),h1(p1,p2,uA) and h1(p1,p2,uB),then compare areas].
(b) How would your demand curve diagram be different if good 1 were a Giffen good?
(c) Explain intuitively why CV = EV when there is no income effect.