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1、6FromDemandtoWelfareLearningObjectivesAfterreadingthischapter,studentsshouldbeableto:}Distinguishbetweenthetwomaineffectsofapricechangeandunder-standwhydemandcurvesgenerallyslopedownward.}Explainhowtousedemandcurvestomeasurechangesinconsumerwelfare.}Explainthepurp
2、oseofacost-of-livingindexanddefinetheLaspeyresindex.}Usecost-of-livingindexestomeasurechangesinconsumerwelfareandexplainwhythosemeasuresmaybebiased.}Understandthetrade-offbetweenconsumptionandleisureandexplainhowthewagerateaffectslaborsupply.n1943,T.J.Watson,Sr.,the
3、founder,president,andlaterchairmanofIBM,famouslyIspeculatedthatthereisaworldmarketformaybefivecomputers.Withthebenefitof20-20hindsight,weknowthathisforecastwaslowbyafactorofatleastseveralhun-dredmillion.ButWatsondidntlackvisionorimaginationhesimplyfailedtoanticipat
4、ehowinexpensivecomputerswouldbecome.Today,a$1,000computerthatweighsafewpoundsandslipsintoabriefcaseperformscomputationsmorethanamilliontimesasfastasENIAC,theworldsfirstall-purposeelectronicdigitalcomputer,builtin1946ataninflation-adjustedcostofnearly$5million.Asare
5、sultofthedramaticreductioninthepriceofcomputingpower,consumersarepresumablybetterofftodaythan10,20,or30yearsagobutbyhowmuch?Weknowwhatwepayforourcomputers,butwhataretheyworthtous?Indollarterms,whathasthedigitalrevolutioncontributedtoourwell-being?Policymakershave
6、akeeninterestintheanswerstoquestionslikethese.Forexample,whentheyusecitizenstaxdollarstosupportthedevelopmentofnewtechnologies(astheydidwithdigitalcomputing),theyarebettingthatthenetsocialbenefitswillexceedthecosts.Similarly,businessescansometimesprofitfrombetterkn
7、owledgeofthevalue166ber00279_c06_166-208.indd166CONFIRMINGPAGES10/10/079:19:34AMChapter6FromDemandtoWelfare167thatconsumersderivefromaproductorservice(see,forexample,thediscussionofpricediscriminationinChapter18).Inthischapter,wellcontinueourexplorationofconsumer
8、decisionmakingbyexam-iningfivetopics:1.Dissectingtheeffectsofapricechange.Pricechangesaffectpurchasesintwoways.First,consumersshifttheirpurchasestowardthosegood
