ECON20002 Lecture 2: Consumer Preferences
27 Jul 2018
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Document Summary
Goods and service tax doesn"t apply to basic food, health, education, childcare and water. First proposed reform is to raise the rate. Second is to remove exempt items from the gst. A uniform gst will be simpler and less distortionary. To compensate we need to provide a lump-sum subsidy. A consumer preference model will help determine the amount of the subsidy. Examines how a consumer, given their budge constraint, decides between optimal basket of good a vs. good b. Must weigh the marginal benefit of greater consumption against the marginal cost of doing so. A list of specific quantities of one or more goods. Need to find the optimal composition of goods in their basket. In the lecture example the consumer chooses between two goods (e. g. ) food (f) and other good (j) When there are multiple goods to consider it"s not easy to figure out which is better. Need to be able to rank baskets to make comparisons.
