1

1.1 positive economics

normative economics
Positive economics



Normative economics Optimal theory

(What ought to be)

1.2


1.
2.

1.
2.

EC 344 1
 3.
(public goods)
(externality)
4.

5.

6.

1. (allocation of resources)

2. (distribution function)

3. (stabilization function)

(private goods)

2 EC 344

A

B SIC3
C
SIC2
D SIC1
O
SIC
(Social Indifference Curve) SIC
SIC (convex to origin)
(diminishing rate)
)
A B
C D
D

) D


) A

( 2546 13-41 )

1.3

(Production Possibility Curve : PPC) X Y
(concave from the origin)

EC 344 3
 Y

Y1 E
Y2 F

0 X1 X2 X
X Y

E F
Y1Y2 X1 X2

SIC

0 X
E PPC SIC
PPC SIC
PPC X Y
Marginal Rate of Transformation between X and Y (MRTXY)
SIC Marginal Rate of Substitution between X and Y (MRSXY)
MRTXY = MRSXY

4 EC 344
 PPC
X 2 + Y 2 = 200
utility function
U = XY
X Y
Maximize U = XY
Subject to
X 2 + Y 2 = 200
Lagrangian function
12 12
L = X Y + [ X 2 + Y 2 200 ]
LX = 1 X 1 / 2 Y1 / 2 + 2X = 0 ________(1)
2
X 12 Y + 2 Y
1/ 2 1 / 2
LY = = 0 ________(2)
L = X2 + Y2 200 = 0 ________(3)
1 X 1 / 2 Y 1 / 2
(1) 2 = 2 X
(2) X 12 Y
1/ 2 1 / 2 2 Y

Y = X
X Y
X2 = Y2
X2 = Y2 (3)
2X2 = 200
X2 = 100
X = 10
Y = 10
U = (10 )(10 ) = 10

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 PPC
X2 + Y2 = 200
Y2 = 200 X2
2YdY = 2 XdX
dY = XY
dX

12 12
MRSXY U = X Y
1 X 1 / 2 Y 1 / 2
U X
MRSXY = = 2 = XY
U Y X 12 Y
1/ 2 1 / 2

SIC

A SIC3
SIC2
SIC1
SIC3
B SIC2
SIC1
0 PPC
X
PPC
SIC A

B

6 EC 344