02Theoretical Tools of Public Finance（课件）- 《财政与金融》同步教学（人民大学·第五版）

2.1 Constrained Utility Maximization 2.2 Putting the Tools to Work: TANF and Labor Supply Among Single Mothers 2.3 Equilibrium and Social Welfare 2.4 Welfare Implications of Benefit Reductions: The TANF Example Continued 2.5 Conclusion Theoretical Tools of Public Finance 2 1 of 52 1 2 This chapter covers the theoretical tools of public finance. Theoretical tools: The set of tools designed to understand the mechanics behind economic decision making. Empirical tools: The set of tools designed to analyze data and answer questions raised by theoretical analysis. Theoretical Tools of Public Finance C H A P T E R 2 ■ T H E O R E T I C A L T O O L S O F P U B L I C F I N A N C E of 52 2 2 We can illustrate how consumers are presumed to make choices in four steps: First, we discuss how to model preferences graphically. Then, we show how to take this graphical model of preferences and represent it mathematically with a utility function. Next, we model the budget constraints that individuals face. Finally, we show how individuals maximize their utility (make themselves as well off as possible) given their budget constraints. Introduction: How Consumers Make Choices C H A P T E R 2 ■ T H E O R E T I C A L T O O L S O F P U B L I C F I N A N C E of 52 3 2.1 Utility function: A mathematical function representing an individual’s set of preferences, which translates her well-being from different consumption bundles into units that can be compared in order to determine choice. Constrained utility maximization: The process of maximizing the well-being (utility) of an individual, subject to her resources (budget constraint). Models: Mathematical or graphical representations of reality. Constrained Utility Maximization C H A P T E R 2 ■ T H E O R E T I C A L T O O L S O F P U B L I C F I N A N C E of 52 4 Indifference curve: A graphical representation of all bundles of goods that make an individual equally well off. Because these bundles have equal util