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Chapter 5 - Using consumer choice theory. In this chapter students will be able to: Determine how an excise subsidy affects consumer welfare and why it results in a deadweight loss, examine how the public provision of a certain quantity of a good such as education may lead to less consumption of the good, analyze how a voucher program would affect the quantity of educational services chosen by parents for their children. | By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 13th Edition, Copyright 2015 Chapter 5: Using Consumer Choice Theory MICROECONOMICS: Theory & Applications Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Determine how an excise subsidy affects consumer welfare and why it results in a deadweight loss. Examine how the public provision of a certain quantity of a good such as education may lead to less consumption of the good. Analyze how a voucher program would affect the quantity of educational services chosen by parents for their children. (continued) Learning Objectives (continued) Explore the impact of per-bag charges versus a fixed annual fee on the amount of trash generated by a community, recycling, and household welfare. Develop an intertemporal model that illuminates the consumer’s choice to save or borrow and shows how changes in endowment and the interest rate affect that choice. Understand how the theory of consumer choice can explain what . | By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 13th Edition, Copyright 2015 Chapter 5: Using Consumer Choice Theory MICROECONOMICS: Theory & Applications Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Determine how an excise subsidy affects consumer welfare and why it results in a deadweight loss. Examine how the public provision of a certain quantity of a good such as education may lead to less consumption of the good. Analyze how a voucher program would affect the quantity of educational services chosen by parents for their children. (continued) Learning Objectives (continued) Explore the impact of per-bag charges versus a fixed annual fee on the amount of trash generated by a community, recycling, and household welfare. Develop an intertemporal model that illuminates the consumer’s choice to save or borrow and shows how changes in endowment and the interest rate affect that choice. Understand how the theory of consumer choice can explain what types of financial assets an individual intent on saving for the future should purchase, or invest in. 5.1 EXCISE SUBSIDIES, HEALTH CARE, AND CONSUMER WELFARE Determine how an excise subsidy affects consumer welfare and why it results in a deadweight loss. Excise Subsidies, Health Care, and Consumer Welfare Excise subsidy – a form of subsidy in which the government pays part of the per-unit price of a good and allows consumers to purchase as many units as desired at the subsidized price Example: tax credit for a expenditures on a specific good or service Lowers the price to the consumer or taxpayer Figure 5.1 - Excise versus Lump-Sum Subsidy The Relative Effectiveness of a Lump-Sum Transfer Lump-sum transfer – a form of subsidy in which the government gives the consumer a cash grant to be spent in any way the recipient wants. Cash transfer: has an income effect Excise subsidy: has both an income effect and a substitution effect Consequently, consumers prefer a cash grant
