价格变化和福利代写 EC201代写 Problem Set 代写 经济代写

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?

Readings:

Blundell, R., Griffith, R., Levell, P., &O’Connell, M.(2020). Could COVID-19 Infect the Consumer Prices Index?. Fiscal Studies, 41(2), 357-361.

https://www.ifs.org.uk/publications/14809

Cavallo, A. (2020). Inflation with Covid consumption baskets (No. w27352). National Bureau of Economic Research.

https://www.nber.org/papers/w27352

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,u_A) and h₁(p₁,p₂,u_B),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.

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