Welfare: The Social-Welfare Functiondarp.lse.ac.uk/pdf/EC202/RevisionLecture_15.pdf · Take log of...
Transcript of Welfare: The Social-Welfare Functiondarp.lse.ac.uk/pdf/EC202/RevisionLecture_15.pdf · Take log of...
Frank Cowell: EC202 Revision Lecture
REVISION LECTURE EC202 http://darp.lse.ac.uk/ec202 7th May 2015 Frank Cowell
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Frank Cowell: EC202 Revision Lecture
Overview...
Styles of question
Doing short questions
Doing long questions
Revision lecture
How to see what you need to do
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Frank Cowell: EC202 Revision Lecture
Objectives of the lecture A look back at Term 1 Exam preparation Reference materials used (1)
• Exam papers (and outline answers) • 2010 1(a) • 2011 1(a), 3 • 2012 3, 4 • 2013 1(c) • 2014 1(d)
Reference materials used (2) • CfD presentation 5.7 • Related to past exam questions
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Frank Cowell: EC202 Revision Lecture
The exam paper Scope of exam material
• what’s covered in the lectures… • … is definitive for the exam
Structure and format of paper • similar to previous years • 6 short questions (answer 5) • 3 long questions in each of parts B and C • answer 3 long (at least one from each of B and C)
Mark scheme • 8 marks for each short question • 20 marks for each long question • multipart questions: marks per part shown on the exam paper
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Frank Cowell: EC202 Revision Lecture
Question style – three types 1 Principles
• reason on standard results and arguments • can use verbal and/or mathematical reasoning
2 Model solving • a standard framework • you just turn the wheels
3 Model building • usually get guidance in the question • longer question sometimes easier?
One type not necessarily “easier” or “harder” than another • part A usually gets you to do both types 1 and 2 • type 3 is usually only in parts B and C of paper
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Frank Cowell: EC202 Revision Lecture
Overview...
Styles of question
Doing short questions
Doing long questions
Revision lecture
How to tackle the main types of question
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Frank Cowell: EC202 Revision Lecture
2014 1(d)
Straightforward “principles” question Just say what you need to say
• define “fairness” • describe key property of competitive equilibrium
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Frank Cowell: EC202 Revision Lecture
2010 1(a) Straight “principles” Be sure to read the question carefully Be sure to give your reasons
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Frank Cowell: EC202 Revision Lecture
2010 1(a)
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Frank Cowell: EC202 Revision Lecture
2011 1(a) A simple model Be sure to draw a
diagram… …and think
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Frank Cowell: EC202 Revision Lecture
2011 1(a)
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Frank Cowell: EC202 Revision Lecture
2013 1(c) Principles and model-solving Write down the principle Write down the basics of the model and solve
Use standard definition of expected utility and variance Define ARA Differentiate u Evaluate ARA Multiply by x to get RRA
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Frank Cowell: EC202 Revision Lecture
2011 3
Stating principles can come up in long questions Don’t ignore them in a rush to get to the model! There are sometimes easy marks just writing down the definition… …and then you can apply it to the problem
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Frank Cowell: EC202 Revision Lecture
Overview...
Styles of question
Doing short questions
Doing long questions
Revision lecture
How to do well in exams
May 2015
•Preparing and planning •2012 Q3 •CfD 5.7 •2012 Q4
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Frank Cowell: EC202 Revision Lecture
Planning Answers
What’s the point? • take a moment or two: make notes to yourself • what is the main point of the question? • and the subpoints?
See the big picture • balance out the answer • imagine that you’re drawing a picture • if pressed for time, don’t rush to put in extra detail
Be an economist with your own time • don’t solve things twice • reuse results • answer the right number of questions!
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Frank Cowell: EC202 Revision Lecture
Tips Follow the leads
• examiners may be on your side! • so if you’re pointed in the right direction, follow it…
Pictures • help you to see the solution • help you to explain your solution to examiner
What should the answer be? • take a moment before each part of the question • check the “shape” of the problem • use your intuition
Does it make sense? • again take a moment to check after each part • we all make silly slips
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Long questions Let’s look at examples
• taken from past papers • also from exercises in the book of “exam type” difficulty • covered in CfD
Illustrates two types of question • 2012 Q3 and Ex 5.7 are straight model solving • 2012 Q4 incorporates some model building
Look out for tips • use pictures to clarify solution • following hints in 2012 Q3
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Frank Cowell: EC202 Revision Lecture
Overview...
Styles of question
Doing short questions
Doing long questions
Revision lecture
Modelling choice under uncertainty
May 2015
•Preparing and planning •2012 Q3 •CfD 5.7 •2012 Q4
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Frank Cowell: EC202 Revision Lecture
2012 Q3 (a)
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Frank Cowell: EC202 Revision Lecture
2012 Q3 (a)
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For prices above min AC the FOC for max profit is:
From which optimal output is:
Frank Cowell: EC202 Revision Lecture
2012 Q3 (a)
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Frank Cowell: EC202 Revision Lecture
2012 Q3 (b)
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Frank Cowell: EC202 Revision Lecture
2012 Q3 (b)
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Frank Cowell: EC202 Revision Lecture
2012 Q3 (b)
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Frank Cowell: EC202 Revision Lecture
2012 Q3 (c)
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Frank Cowell: EC202 Revision Lecture
2012 Q3 (d, e)
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Frank Cowell: EC202 Revision Lecture
2012 Q3 − assessment
27 May 2015
Make good use of a diagram to “see” the problem Re-use the solutions
• one part of the problem… • …helps to build the next.
Don’t be fazed by the presence of a discontinuity • everything is nice and regular either side of it.
Frank Cowell: EC202 Revision Lecture
Overview...
Styles of question
Doing short questions
Doing long questions
Revision lecture
A problem about price control
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•Preparing and planning •2012 Q3 •CfD 5.7 •2012 Q4
Frank Cowell: EC202 Revision Lecture
Ex 5.7: Question
purpose: Illustration of labour supply model with very simple preferences method: Consumer optimisation with endogenous budget constraint
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Frank Cowell: EC202 Revision Lecture
Ex 5.7: Worker’s problem Basic constraints on worker are
• x is consumption • y is non-labour income • w is wage rate • ℓ is labour supply
Worker’s problem can therefore be written as
• found by substituting from above into utility function
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Frank Cowell: EC202 Revision Lecture
Ex 5.7: Worker’s optimum Take log of maximand to get
• α log(wℓ +y) + [1 − α] log(1 − ℓ)
Differentiate with respect to ℓ
This is zero if • − wℓ + αw + [α − 1]y = 0 • which implies ℓ = α + [α − 1]y / w
But this only makes sense if ℓ is non-negative • requires w ≥ [1 − α]y / α • so optimal labour supply is
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Frank Cowell: EC202 Revision Lecture
Ex 5.7: Interior maximum (leisure, consumption)-space Max value of leisure
Non-labour income Budget constraint
x
1 − ℓ 0
Indifference curves
1
y
Optimum
1 − ℓ*
slope = w
w ≥ [1 −α]y / α 0 < ℓ* < 1
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Frank Cowell: EC202 Revision Lecture
Ex 5.7: Corner solution
Non-labour income
Budget constraint
x
1 − ℓ 0
Indifference curves as before
1
y
Optimum
•
w < [1 − α]y / α ℓ* = 0
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Frank Cowell: EC202 Revision Lecture
Ex 5.7: Points to note
Treat leisure as a conventional good Has a natural upper bound
• where labour is zero Have to allow for corner solution
• where person chooses not to work Type of equilibrium depends on
• wage rate • non-labour income
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Frank Cowell: EC202 Revision Lecture
Overview...
Styles of question
Doing short questions
Doing long questions
Revision lecture
Modelling choice under uncertainty
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•Preparing and planning •2012 Q3 •CfD 5.7 •2012 Q4
Frank Cowell: EC202 Revision Lecture
2012 Q4 (a)
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Frank Cowell: EC202 Revision Lecture
2012 Q4 (b)
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Frank Cowell: EC202 Revision Lecture
2012 Q4 (c)…
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Frank Cowell: EC202 Revision Lecture
…2012 Q4 (c)
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Frank Cowell: EC202 Revision Lecture
2012 Q4 (d)
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Frank Cowell: EC202 Revision Lecture
2012 Q4 (e)
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Frank Cowell: EC202 Revision Lecture
2012 Q4 (f)
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Frank Cowell: EC202 Revision Lecture
2012 Q4 − assessment It seems like a long question
• broken into digestible pieces • makes model-building easier • shows you exactly what to do, stage by stage • important message….
“long” ≠ “difficult” Core of problem involves elementary things
• carefully specify budget constraint in each part of the Q • plug into simple utility function • use FOC to get result • applies to parts (b)—(e)
Finishing off • final part just involves simple differentiation of the solution • don’t forget the “explain why” in part (e) • see also Ex 8.12
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