【正文】 g Decision... An Increase in the Interest Rate... 0 Consumption when Old 1. A higher interest rate rotates the budget constraint outward... I2 I1 BC2 BC1 2. …resulting in lower consumption when young and, thus, higher saving. Consumption when Young Hours of Leisure 0 I2 I1 BC2 BC1 Consumption when Old 1. A higher interest rate rotates the budget constraint outward... 2. …resulting in higher consumption when young and, thus, lower saving. (a) Higher Interest Rate Raises Saving (b) Higher Interest Rate Lowers Saving How do interest rates affect household saving? ? Thus, an increase in the interest rate could either encourage or discourage saving. Do the poor prefer to receive cash or inkind transfers? ? If an inkind transfer of a good（實物交易） forces the recipient （接受者） to consume more of the good than he would on his own, then the recipient prefers the cash transfer. Do the poor prefer to receive cash or inkind transfers? ? If the recipient does not consume more of the good than he would on his own, then the cash and inkind transfer have exactly the same effect on his consumption and welfare. Cash Transfer InKind Transfer (a) The Constraint Is Not Binding Nonfood Consumption 0 $1,000 $1,000 Food A B I2 I1 BC1 BC2 (with $1,000 cash) Nonfood Consumption 0 Food A B I2 I1 BC1 BC2 (with $1,000 food stamps) Cash versus InKind Transfers... Cash Transfer InKind Transfer (b) The Constraint Is Binding Nonfood Consumption 0 $1,000 $1,000 Food A B I2 I1 BC1 BC2 (with $1,000 cash) Nonfood Consumption 0 Food A B I2 I1 BC1 BC2 (with $1,000 food stamps) Cash versus InKind Transfers... C I3 Summary ? A consumer’s budget constraint shows the possible binations of different goods he can buy given his ine and the prices of the goods. ? The slope of the budget constraint equals the relative price of the goods. ? The consumer’s indifference curves represent his preferences. Summary ? Points on higher indifference curves are preferred to points on lower indifference curves. ? The slope of an indifference curve at any point is the consumer’s marginal rate of substitution. ? The consumer optimizes （使最優(yōu)化） by choosing the point on his budget constraint that lies on the highest indifference curve. Summary ? When the price of a good falls, the impact on the consumer’s choices can be broken down into an ine effect and a substitution effect. ? The ine effect is the change in consumption that arises because a lower price makes the consumer better off. ? The ine effect is reflected by the movement from a lower to a higher indifference curve. Summary ? The substitution effect is the change in consumption that arises because a price change encourages greater consumption of the good that has bee relatively cheaper. ? The substitution effect is reflected by a movement along an indifference curve to a point with a different slope. Summary ? The theory of consumer choice can explain: ? Why demand curves can potentially slope upward. ? How wages affect labor supply. ? How interest rates affect household saving. ? Whether the poor prefer to receive cash or inkind transfers. Graphical Review The Consumer’s Budget Constraint... Quantity of Pizza Quantity of Pepsi 0 Consumer’s budget constraint 500 B 100 A The Consumer’s Budget Constraint... Quantity of Pizza Quantity of Pepsi 0 250 50 100 500 B C A Consumer’s budget constraint The Consumer’s Preferences... Quantity of Pizza Quantity of Pepsi 0 C B A Indifference curve, I1 D I2 The Consumer’s Preferences... Quantity of Pizza Quantity of Pepsi 0 C B A D Indifference curve, I1 I2 1 MRS Property 1: Higher indifference curves are preferred to lower ones. Quantity of Pizza Quantity of Pepsi 0 C B A D Indifference curve, I1 I2 Property 2: Indifference curves are downward sloping. Quantity of Pizza Quantity of Pepsi 0 Indifference curve, I1 Property 3: Indifference curves do not cross. Quantity of Pizza Quantity of Pepsi 0 C A B Property 4: Indifference curves are bowed inward. 1 MRS = 1 8 3 In