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1、1-1INTERNETCHAPTERONEMicroeconomicsBackgroundfortheStudyofPublicFinanceHewhohaschoicealsohaspain.—GermanproverbCertaintoolsofmicroeconomicsareusedthroughoutthetext.Theyarebrieflyreviewedinthisappendix.Readerswhohavehadanintroductorycourseinmicroeconomicswilllikelyfindthisreviewsufficienttorefreshth
2、eirmemories.Thoseconfrontingthematerialforthefirsttimemaywanttoconsultoneofthestandardintroductorytexts.1Thesubjectscov-eredaredemandandsupply,consumerchoice,andmarginalanalysis.DEMANDANDSUPPLYThedemandandsupplymodelshowshowthepriceandoutputofacommodityaredeter-minedinacompetitivemarket.Wediscussin
3、turnthedeterminantsofdemand,supply,andtheirinteraction.DemandWhichfactorsinfluencepeople’sdecisionstoconsumecertaingoods?Tomaketheproblemconcrete,letusconsiderthespecificcaseofcoffee.Abitofintrospectionsuggeststhatthefol-lowingfactorsaffecttheamountofcoffeethatpeoplewanttoconsumeduringagiventimeper
4、iod:1.Price.Weexpectthatasthepricegoesup,thequantitydemandedgoesdown.2.Income.Changesinincomemodifypeople’sconsumptionopportunities.Itishardtosayapriori,however,whateffectsuchchangeshaveonconsumptionofagivengood.Onepossibilityisthatasincomesgoup,peopleusesomeoftheiradditionalincometopurchasemorecof
5、fee.Ontheotherhand,itmaybethatasincomesincrease,peopleconsumelesscoffee,perhapsspendingtheirmoneyoncognacinstead.Weexpectthatchangesinincomeaffectdemandonewayortheother,butinsomecasesitishardtopredictthedirectionofthechange.Ifanincreaseinincomeincreasesthedemand(otherthingsbeingthesame),thegoodisca
6、lledanormalgood.Ifanincreaseinincomedecreasesdemand(otherthingsbeingthesame),thegoodiscalledaninferiorgood.1See,forexample,SamuelsonandNordhaus(1989).1-2InternetChapter1:MicroeconomicsBackgroundfortheStudyofPublicFinance3.Pricesofrelatedgoods.Supposethepriceofteagoesup.Ifpeoplecansubstitutecof-feef
7、ortea,thisincreaseinthepriceofteaincreasestheamountofcoffeepeoplewishtoconsume.Nowsupposethepriceofcreamgoesup.Ifpeopleconsumecoffeeandcreamtogether,thistendstodecreasetheamountofcoffeeconsumed.Goodsliketea
