Microeconomics is the symmetry of "macroeconomics" and is an economics that mainly studies individual economic entities such as households, manufacturers (enterprises) and markets, and their interrelationships.

Microeconomics takes the economic behavior and economic laws of each economic unit in the market economy as its examination object. It is a discipline that studies how a single producer or enterprise uses limited resources to produce goods and services to obtain maximum profits, and how a single consumer or family uses limited monetary income to purchase goods and services to obtain maximum satisfaction. Therefore, the core content of microeconomics is to demonstrate the principle of Adam Smith's "invisible hand".

Scarcity in economics means that within a given period of time, the supply of economic resources is always insufficient relative to the infinite needs or desires of human beings.

Relative to the infinite desires of human beings, economic goods or the resources required to produce these economic goods are always insufficient. It is precisely because of the objective existence of scarcity that the contradiction between the limited nature of resources and the infinite nature of human needs and desires is caused. This has led economists to study the issues of what, how and for whom to produce using limited resources from an economic perspective.

Economic man is a basic assumption of Western economics when conducting economic analysis. It is also called rational man and is an abstraction of ordinary people in economic life. Its nature is assumed to be self-interested, always trying to pursue and obtain its own maximum economic benefits at the minimum economic cost. In this way, the starting point for people to make economic decisions is private interests. Everyone seeks to maximize private interests and will not do anything that is not beneficial to themselves.

Economic man assumptions include the following: ①In economic activities, the only goal pursued by individuals is to maximize their own economic interests. Economic man subjectively considers neither social interests nor his own non-economic interests. ② All economic behaviors of individuals are conscious and rational, and there are no empirical or random decisions. Therefore, economic man is also called rational man. ③Economic man has sufficient economic information, and everyone clearly understands the conditions and consequences of all his economic activities. Therefore, there is no uncertainty in the economy and there is no cost to obtain information. ④Various production resources can flow freely between departments and regions without any cost.

Price elasticity of demand indicates the degree of response to changes in the price of a commodity to changes in demand for a commodity within a certain period of time. In other words, it represents the percentage change in the demand for a commodity caused by a 1% change in the price of the commodity within a certain period of time. If ed is used to represent the price elasticity of demand, △Q is used to represent the change in demand for the commodity, and △P represents the change in the price of the commodity, the price elasticity of demand is:

There are many factors that affect the price elasticity of demand, among which the main ones are: Substitutability of goods, The wide range of uses of the product, The importance of goods to consumers’ lives-, The proportion of consumer spending on goods in total consumer budget spending, The time it takes the consumer under examination to adjust demand, etc.

The price elasticity of demand is closely related to the total revenue from commodity sales. If the price elasticity of demand is greater than 1, that is, the commodity is elastic, and its total sales revenue and price change in the opposite direction, that is, the total sales revenue decreases as the price increases and increases as the price decreases; If the price elasticity of demand is less than 1, that is, the commodity is inelastic, and the total sales revenue of the commodity changes in the same direction as the price, that is, the total sales revenue increases as the price increases and decreases as the price decreases. If the price elasticity of demand is equal to 1, that is, the product is unit elastic, lowering or raising prices will have no impact on the manufacturer's total sales revenue.

Cross-price elasticity of demand, referred to as cross-elasticity of demand, indicates the degree of response to changes in the demand for one commodity to changes in the price of another commodity within a certain period. In other words, it represents the percentage change in the demand for another commodity caused by a 1% change in the price of one commodity within a certain period. If exy is used to represent the demand cross elasticity coefficient, △Qx is used to represent the change in demand for commodity x, and △Py is used to represent the change in the price of commodity y, the demand cross elasticity formula is:

If there is a substitution relationship between two commodities, then the price of a commodity and the demand for its substitutes will move in the same direction, and the corresponding cross elasticity coefficient of demand will be positive. If there is a complementary relationship between two commodities, the price of one commodity and the demand for its complementary product will move in the opposite direction, and the corresponding cross elasticity coefficient of demand will be negative. If there is no correlation between two commodities, the corresponding cross elasticity coefficient of demand is zero.

The income elasticity of demand indicates the degree of response of consumers to changes in consumer demand for a certain commodity within a certain period of time. In other words, it represents the percentage change in demand for a commodity caused by a 1% change in consumer income within a certain period of time. If eM is used to represent the demand income elasticity coefficient, M and △M are used to represent income and the change in income respectively, Q and △Q represent the demand and the change in demand, the demand income elasticity formula is:

Under the premise that other factors affecting demand are established, the value of the income elasticity coefficient of demand can be used to determine whether the product is a necessity, a luxury product, or an inferior product. If the income elasticity coefficient of demand for a certain commodity is greater than 1, that is, eM>1, then the commodity is a luxury product; If the income elasticity coefficient of demand for a certain commodity is greater than 0 and less than 1, that is, 0<eM<1, then the commodity is a necessity; If the income elasticity coefficient of demand for a certain commodity is less than 0, that is, eM<0, the commodity is an inferior good.

Based on statistical data, German statistician Engel proposed a rule for changes in consumption structure: in a family or in a country, the proportion of food expenditures in income decreases as income increases. The coefficient reflecting this law is called the Engel coefficient, and its formula is expressed as: Engel coefficient = consumer spending on food/consumer disposable income × 100%

Engel's law reveals the correlation between food expenditures and residents' income. The proportion of food expenditures in residents' income is used to illustrate the impact of economic development and income increase on living consumption. Using the concept of elasticity to express Engel's law can be: for a family or a country, the higher the degree of wealth, the smaller the income elasticity of food expenditure; conversely, the greater.

Over time, later economists made several additions to Engel's Law, and the content of Engel's Law increased. At present, economics’ expression of Engel’s law is: ① As household income increases, the proportion of food expenditures in household income will decrease. ② As family income increases, the proportion of expenditures on family home construction and housework in family income remains generally unchanged. ③As household income increases, the proportion of expenditures and savings on clothing, transportation, entertainment, health care, and education in household income will increase.

Static analysis is to examine the equilibrium state achieved by a certain economic thing under the interaction of economic variables under given conditions. For example, in the equilibrium price determination model, when the demand curve and the supply curve are given, the intersection point of the two is the equilibrium point, the price at this time is the equilibrium price, and the quantity at this time is the equilibrium quantity. In the absence of external forces, In this case the equilibrium point no longer changes. This is the static analysis method.

Comparative static analysis examines what will happen to the original equilibrium state when the original conditions or exogenous variables change, and analyzes and compares the new and old equilibrium states. For example, in the equilibrium price determination model, when changes in exogenous variables cause the position of the demand curve or supply curve to move, the position of the equilibrium point will also change accordingly. The analysis and comparison of the old and new equilibrium points is comparative static analysis.

Dynamic analysis refers to the study of the role of the interaction of variables at different time points in the formation and change of the equilibrium state on the basis of the introduction of time change sequences, and the examination of the actual change process of the equilibrium state during the time change process. For example, the spider web model is a typical dynamic analysis.

The spider web model is a dynamic analysis theory that uses the principle of elasticity to explain the different fluctuations that occur when certain commodities with long production cycles lose equilibrium. Classical economic theory believes that if the equilibrium of supply, demand and price is broken, the equilibrium state will automatically be restored through competition. However, the spider web model proves that according to the assumption of perfect competition under the static conditions of classical economics, once the equilibrium is broken, the economic system does not necessarily automatically return to equilibrium.

Different from the equilibrium price determination model, the spider web model is a dynamic model. It assumes that the supply quantity Qs,t of the commodity in this period is determined by the price Pt-1 in the previous period, that is, the supply function is Qs,t=f(Pt-1), The demand quantity Qs,d of the commodity in this period is determined by the price Pt in this period, that is, the demand function is Qs,d=f(Pt), According to the difference in demand elasticity and supply elasticity, the spider web model can be divided into three types: "convergent spider web", "divergent spider web" and "closed spider web".

The spider web model explains the fluctuations in output and price of certain commodities with long production cycles, and has a certain guiding role in practice. However, this model is still a very simple and flawed model that needs further improvement.

Utility refers to the ability of a commodity to satisfy people's desires, the satisfaction consumers obtain from commodity consumption, and the consumer's subjective preference and evaluation of commodities. Whether a commodity is useful to consumers depends on whether consumers have the desire to consume the commodity and whether the commodity has the ability to satisfy consumers' desires. Since utility is a consumer's subjective preference and evaluation of a product, the same product will have different utility depending on the person, time, and place.

For utility or the measurement of this "degree of satisfaction", Western economists have successively proposed the concepts of cardinal utility and ordinal utility. On this basis, two methods for analyzing consumer behavior were formed, namely, the marginal utility analysis method of cardinal utility theorists and the indifference curve analysis method of ordinal utility theorists.

Utility refers to the ability of a commodity to satisfy people's desires, the satisfaction consumers obtain from commodity consumption, and the consumer's subjective preference and evaluation of commodities. Utility is divided into cardinal utility and ordinal utility. Cardinal utility theory believes that the size of utility can be expressed by imaginary numbers, calculated and compared. For example, the consumer's utility of consuming the first bun is 5, and the utility of the second bun is 4. Therefore, the utility of the first bun is 1 greater than that of the second bun. Ordinal utility theory believes that utility is only a sequential concept, not a quantitative concept. Therefore, when analyzing the utility of commodities, specific numbers cannot be used to describe the utility of commodities. Only first and second ordinal numbers can be used to explain which commodity utility is greater and which is smaller. or equal.

Both cardinal utility theory and ordinal utility theory regard consumer utility as the process of pursuing utility maximization under given income constraints, and both can derive a downward-right commodity demand curve. However, they differ in assumptions, analysis methods, and equilibrium conditions. Assumption - cardinal utility theory: utility can be measured; ordinal utility theory: utility cannot be measured, values ​​can be compared Analytical method - The tool of cardinal utility theory is marginal utility, while the tool of ordinal utility theory is indifference curve. Equilibrium conditions - cardinal utility theory: MUi/Pi=λ; ordinal utility theory: MUx/MUy=Px/Py

The law of diminishing marginal utility refers to the fact that within a certain period of time, under the condition that the consumption of other commodities remains unchanged, as the consumer's consumption of a certain commodity continues to increase, the consumer's continuous increase in consumption from that commodity will The incremental utility obtained per unit, that is, the marginal utility, is diminishing. Assuming that the total utility of consumers is U(q), the law of diminishing marginal utility can be expressed as: dMU(q)/dq<0.

The law of diminishing marginal utility, also known as Gerson's first law, is the basic law of cardinal utility theory. The reason for diminishing marginal utility is ① As the quantity of the same consumer goods increases, from a human physiological and psychological point of view, the degree of satisfaction felt from each continuously increased unit of consumer goods and the degree of response to repeated stimulation decrease; ② When a commodity has several uses, consumers always use the first unit of consumer goods for the most important use and the second unit of consumer goods for the less important use. Therefore, the marginal utility increases with the importance of the use of the consumer goods. decreases with the decrease. ③In real life, consumers have a saturation point in consumption of any commodity. Another fact corresponding to this fact is diminishing marginal utility. Because only when the marginal utility of consuming goods gradually decreases to 0, consumers can reach the point of consumption saturation.

Under the premise of maintaining the level of utility unchanged, the amount of consumption of another commodity that a consumer needs to give up when increasing the consumption of one unit of a commodity is called the marginal rate of substitution. The marginal rate of substitution of good 1 for good 2 is:

The marginal rate of substitution at a point on the indifference curve is the absolute value of the slope of the indifference curve at that point.

The law of diminishing marginal rate of substitution, that is, under the premise of maintaining the same level of utility, as the consumption quantity of one commodity continues to increase, the quantity of consumption of another commodity that consumers need to give up to obtain one unit of this commodity is decreasing. of.

The diminishing marginal rate of substitution is a common feature of consumer preferences. This is because when people increase their ownership of a certain commodity, they become less and less willing to further increase that commodity by reducing other commodities. In fact, the law of diminishing marginal utility implies the law of diminishing marginal rate of substitution. The law of diminishing marginal utility shows that as the consumption quantity of a commodity increases, its marginal utility becomes smaller and smaller. Here, when the consumption quantity of commodity 1 continues to increase, its marginal utility continues to decrease, thereby reducing the amount of other commodities it can be exchanged for; As the consumption of commodity 2 continues to decrease, its marginal utility continues to increase, thereby increasing the number of other commodities it can exchange for. Therefore, here, the law of diminishing marginal utility manifests itself as the law of diminishing marginal rate of substitution.

Geometrically speaking, since the marginal rate of substitution of a commodity is the absolute value of the slope of the indifference curve, the law of diminishing marginal rate of substitution determines that the absolute value of the slope of the indifference curve is decreasing, that is, the indifference curve is convex toward the origin.

Consumer equilibrium refers to a state in which the consumer's utility reaches the maximum and remains unchanged. It studies how a single consumer allocates limited monetary income to the purchase of various commodities to obtain maximum utility, that is, it studies the equilibrium conditions for a single consumer to maximize utility under a given income. The equilibrium here refers to a relatively static state in which consumers neither want to increase nor decrease the quantity of any commodity purchased when achieving maximum utility.

Cardinal utility theorists believe that the equilibrium conditions for consumers to maximize utility are: If the consumer's money income level is fixed and the prices of various commodities in the market are known, then the consumer should make the ratio of the marginal utility to the price of the various commodities he purchases equal. In other words, consumers should equalize the marginal utility brought by spending the last dollar on various commodities. That is, MU/P=λ, where λ is the marginal utility of money.

Ordinal utility theorists combine indifference curves and budget lines to illustrate consumer equilibrium. When any rational consumer uses a certain amount of income to purchase goods, his purpose is to obtain as much consumer satisfaction as possible. Consumer preferences determine the consumer's indifference curve. A consumer's indifference curve cluster for any two commodities can cover the entire coordinate plane. The consumer's income and commodity prices determine the consumer's budget line. Under the conditions of given income and known commodity prices, a consumer can only have one budget line for two commodities. Then, when a consumer faces a given budget line and countless indifference curves, only the tangent point between the given budget line and one of the indifference curves is the equilibrium point where the consumer obtains the maximum level of utility or degree of satisfaction. . At this time, when the budget constraints are P1X1 P2X2=I, MRS12=P1/P2 needs to be satisfied. This is the equilibrium condition considered by ordinal utility theorists to maximize consumer utility.

The change in the relative price of the commodity caused by the change in the commodity price, and then the change in the demand for the commodity caused by the change in the relative price of the commodity, is called the substitution effect. That is, under the premise that the actual income (or utility level) of consumers remains unchanged, the change in demand for goods caused by relative changes in commodity prices. Generally speaking, the substitution effect is always negative, that is, under the premise that the actual income remains unchanged, the price of the commodity and the demand for the commodity move in the opposite direction.

The substitution effect is one of the total effects of price changes, along with the income effect. Total effect = substitution effect income effect. The substitution effect is generally greater in degree than the income effect. In the case of normal commodities, the two effects are in the same direction, that is, price decreases. The substitution effect causes an increase in the quantity purchased by consumers, and the income effect also causes an increase in the quantity purchased by consumers.

Changes in the actual income level caused by changes in commodity prices, and then changes in the demand for goods caused by changes in the actual income level, are called the income effect. That is, under the premise that the relative price of the commodity remains unchanged, the change in the demand for the commodity caused by the relative change in the income level.

The substitution effect is one of the total effects of price changes, along with the income effect. Total effect = substitution effect income effect. The income effect is generally smaller than the substitution effect. In the case of normal commodities, the two effects are in the same direction, that is, the price decreases. The substitution effect causes an increase in the quantity purchased by consumers, and the income effect also causes an increase in the quantity purchased by consumers. However, in the case of low-end goods, the price falls and the income effect causes consumers to reduce the quantity purchased.

The compensation budget line is an analytical tool used to express that when a change in commodity prices causes a change in the actual income level of consumers, the assumed increase or decrease in monetary income is used to maintain the actual income level of consumers unchanged.

Specifically, When the price of goods decreases and the actual income level of consumers increases, it can be assumed that part of the monetary income of consumers is taken away to maintain the actual income of consumers at the original level. The compensation budget line can be used here to represent the situation where the consumer's money income drops to the level of utility that maintains the original indifference curve. When the rise in commodity prices causes the actual income level of consumers to decrease, it can be assumed that certain monetary income compensation will be provided to consumers for their losses, so that the actual income of consumers can maintain the original level. The compensation budget line can be used here to represent the situation when the consumer's money income increases to the level of utility that maintains the original indifference curve.

Low-end goods are goods for which demand and income vary in opposite directions. Therefore, the quantity demanded of low-end goods decreases as income increases and increases as income decreases. A concept corresponding to this is normal goods, that is, goods whose demand and income change in the same direction. The demand for normal goods increases as income increases and decreases as income decreases.

An important characteristic of low-end goods is that price changes and income effects move in the same direction. Commodity price reductions increase consumers' actual income, and according to the definition of low-end items, increased income reduces the demand for low-end items, so the income effect of price reductions for low-end items is negative. Since the substitution effect of commodity price reductions is always positive, the income effect of low-end goods weakens the substitution effect.

Giffen items are a special type of low-end items. As low-end goods, the substitution effect of Giffen goods changes in the opposite direction with the price, and the income effect changes in the direction with the price. The particularity of Giffen goods is that its income effect is so large that it exceeds the substitution effect, causing the total effect to change in the same direction as the price. This is why the demand curve for Giffen goods has a special shape that slopes upward to the right.

Expected utility refers to the weighted average of the utility of various outcomes that a consumer may obtain under uncertain conditions. If Р and 1-P are used to represent the probabilities of the two outcomes W and Q, the expected utility function can be written as: EU = PU(W) (1-P)U(Q) It can be seen that the consumer's expected utility is the weighted average of the utility of various outcomes that the consumer may obtain under uncertain conditions. Due to the establishment of the expected utility function, the analysis of the behavior of consumers facing risks under uncertain conditions becomes the analysis of the behavior of consumers pursuing the maximization of expected utility.

Consumer equilibrium refers to a state in which the consumer's utility reaches the maximum and remains unchanged. It studies how a single consumer allocates limited monetary income to the purchase of various commodities to obtain maximum utility, that is, it studies the equilibrium conditions for a single consumer to maximize utility under a given income. The equilibrium here refers to a relatively static state in which consumers neither want to increase nor decrease the quantity of any commodity purchased when achieving maximum utility.

Cardinal utility theorists believe that the equilibrium conditions for consumers to maximize utility are: If the consumer's money income level is fixed and the prices of various commodities in the market are known, then the consumer should make the ratio of the marginal utility to the price of the various commodities he purchases equal. In other words, consumers should equalize the marginal utility brought by spending the last dollar on various commodities. That is, MU/P=λ, where λ is the marginal utility of money.

Ordinal utility theorists combine indifference curves and budget lines to illustrate consumer equilibrium. When any rational consumer uses a certain amount of income to purchase goods, his purpose is to obtain as much consumer satisfaction as possible. Consumer preferences determine the consumer's indifference curve. A consumer's indifference curve cluster for any two commodities can cover the entire coordinate plane. The consumer's income and commodity prices determine the consumer's budget line. Under the conditions of given income and known commodity prices, a consumer can only have one budget line for two commodities. Then, when a consumer faces a given budget line and countless indifference curves, only the tangent point between the given budget line and one of the indifference curves is the equilibrium point where the consumer obtains the maximum level of utility or degree of satisfaction. . At this time, when the budget constraints are P1X1 P2X2=I, MRS12=P1/P2 needs to be satisfied. This is the equilibrium condition considered by ordinal utility theorists to maximize consumer utility.

To be continued

The Cobb-Douglas production function was proposed by mathematician Cobb and economist Douglas in the early 1930s. The Cobb-Douglas production function is a typical representative function of the neoclassical model, and its general form is: Q=ALαKβ. In the formula, Q is output; L and K are labor and capital inputs respectively; A, α and β are three parameters, 0<α, β<1.

The economic meaning of parameters α and β is: when α β=1, α and β respectively represent the relative importance of labor and capital in the production process, α is the share of labor income in total output, and β is capital The share of income in total output.

According to the sum of the parameters α and β in the Cobb-Douglas production function, the returns to scale can also be judged. If α β>1, it means increasing returns to scale; if α B=1, it means constant returns to scale; if α B<1, it means decreasing returns to scale.

Under the condition that the technical level and other factors remain unchanged, as a certain variable production factor is continuously added to other one or several production factors with a constant quantity, the process will When the input amount of this variable production factor is less than a certain value, the marginal product brought about by increasing the input of this production factor is increasing; When the input amount of this variable production factor continues to increase and exceeds this specific value, the marginal product brought about by increasing the input of this factor is decreasing. This is the law of diminishing marginal returns.

Theoretically, the reason why the law of diminishing marginal returns holds true is that: For the short-term production of any product, there is an optimal quantitative combination ratio between variable production factor inputs and constant production factor inputs. At the beginning, since the input amount of constant production factors is given and the input amount of variable production factors is zero, the input amount of production factors is far from reaching the optimal quantity combination ratio. As the input of variable production factors gradually increases, the input of production factors gradually approaches the optimal quantity combination ratio, and the marginal product of variable production factors shows an increasing trend. Once the inputs of production factors reach the optimal quantity combination ratio, the marginal product of the variable production factors reaches the maximum value. After this point, as the input of variable production factors continues to increase, the input of production factors increasingly deviates from the optimal quantity combination ratio, and the marginal product of the corresponding variable production factors shows a decreasing trend.

The law of diminishing marginal returns emphasizes that in the short-term production of any product, as the input of a variable production factor increases, its marginal product will eventually show decreasing characteristics.

Under the condition that the output level remains unchanged, when a producer increases the input of one production factor by one unit, the input amount of another production factor decreases, which is called the marginal technical substitution rate, and its English abbreviation is MRTS. Using △K and △L to represent the changes in capital input and labor input respectively, then the marginal technical substitution rate of labor for capital is:

In the process of mutual substitution of production factors, there is a law of diminishing marginal technical substitution rate. That is, under the premise of maintaining output constant, as the input of one production factor continues to increase, the amount of another production factor that each unit of this production factor can replace decreases. The main reason for the diminishing marginal rate of technical substitution is that the production technology of any product requires an appropriate ratio between the inputs of production factors, which means that substitution between production factors is limited.

The optimal combination of production factors refers to the situation where there are two or more variable production factors (that is, long-term production) under the condition that the factor prices remain unchanged. The optimal quantity combination of various production factors that enables producers to maximize output at a given cost or minimize costs at a given output.

Return to scale refers to the change in output caused by various production factors within the enterprise changing in the same proportion when other conditions remain unchanged. Returns to scale analyze the relationship between changes in a company's production scale and the resulting changes in output. Only in the long term can an enterprise change all production factors and thus the scale of production. Therefore, the analysis of enterprise returns to scale is a long-term production theory issue.

Changes in enterprise returns to scale can be divided into three situations: increasing returns to scale, constant returns to scale, and decreasing returns to scale. Among them, the proportion of increase in output is greater than the proportion of increase in various production factors, which is called increasing returns to scale; The proportion of increase in output is equal to the proportion of increase in various production factors, which is called constant returns to scale; The proportion of increase in output is less than the proportion of increase in various production factors, which is called diminishing returns to scale.

Generally speaking, in the long-term production process, the changes in returns to scale of enterprises show the following rules: When an enterprise gradually expands from an initially small production scale, the enterprise faces a stage of increasing returns to scale. After the enterprise has obtained all the benefits of the increase in output brought about by the expansion of production scale, it will generally continue to expand the scale of production and maintain production at a stage where returns to scale remain constant. This stage may be relatively long. After that, if the enterprise continues to expand its production scale, it will enter a stage of diminishing returns to scale.

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Opportunity cost refers to the maximum expected benefit forgone when a resource is used for one purpose rather than for other, more beneficial uses. The existence of opportunity cost requires three prerequisites: ① Resources are scarce; ②Resources have multiple production uses; ③There are no restrictions on the investment of resources. The concept of opportunity cost is based on the scarcity of resources. When examining the production process from the perspective of opportunity cost, manufacturers need to invest production factors in projects with the greatest returns, thereby avoiding production waste and optimizing resource allocation.

Starting from the premise of scarcity of economic resources, when a society or an enterprise uses certain economic resources to produce a certain amount of one or several products, these economic resources cannot be used for other production purposes at the same time. That is to say, the certain amount of product income that this society or this enterprise can obtain is at the cost of giving up the product income that can be obtained when using the same economic resources to produce other products. This is also the reason why opportunity costs arise.

Explicit cost refers to the actual expenditure of manufacturers to purchase or rent the production factors required in the production factor market, that is, the monetary amount paid by the enterprise to the owners of economic resources other than the enterprise. It can also be said to be the monetary expenditures required by an enterprise to engage in an economic activity, including employee wages, purchase of raw materials and fuels, purchase or rental of equipment, interest, insurance premiums, advertising fees, taxes, etc. Explicit costs can also be called accounting costs.

Implicit cost is relative to explicit cost and refers to the total price of those production factors owned by the manufacturer itself and used in the production process of the enterprise.

Implicit costs are associated with the firm's own production factors used and reflect the fact that these factors can also be used elsewhere. For example, during the production process, a certain manufacturer not only hires a certain number of workers from the labor market, obtains a certain amount of loans from banks, or rents a certain amount of land, but sometimes also uses its own funds and land to personally manage the enterprise. When manufacturers use these own production factors, they also have to pay themselves interest, land rent and wages, so this value should also be included in the cost. Because this cost is not as obvious as the explicit cost, it is called a hidden cost.

Sunk costs refer to expenditures that have been incurred and cannot be recovered. Sunk costs are often visible, but once they occur, they are often overlooked when making economic decisions. Since it is irrecoverable, it does not affect corporate decisions.

For example, if a piece of special equipment is designed according to the specific requirements of an enterprise, assuming that the equipment can only be used for the purpose for which it was originally designed and cannot be used for other purposes, this expenditure is a sunk cost. Because the equipment has no other use, the opportunity cost is zero, and therefore this should not be included in the firm's costs. Regardless of whether the decision to purchase the equipment was correct or not, this expenditure has been wasted and should not affect the current decision-making.

Economic profit refers to a benefit that belongs to the owner of the enterprise and exceeds the opportunity cost of all production factors used in the production process.

The accounting profit of a company is the difference between the manufacturer's total revenue and accounting costs, that is, the manufacturer's book profit when declaring the income tax payable. However, profit in Western economics not only includes accounting profit, but also must further consider the cost of the enterprise's own input factors. Implicit costs are associated with the firm's own production factors used and reflect the fact that these factors can also be used elsewhere. During the production process, a certain manufacturer not only hires a certain number of workers from the labor market, obtains a certain amount of loans from banks, or rents a certain amount of land, but sometimes also uses its own funds and land to personally manage the enterprise. When manufacturers use these own production factors, they also have to pay themselves interest, land rent and wages, so this value should also be included in the cost. If accounting profits are subtracted from hidden costs, it is the concept of profit in the economic sense, which is called economic profit, or excess profit. The various profit relationships mentioned above are:

Accounting profit = total revenue - accounting cost = total revenue - apparent cost

Economic profit = excess profit = total revenue - economic cost = total revenue - (explicit cost, hidden cost) = accounting profit - hidden cost

Normal profit refers to the firm's payment for the entrepreneurial talent it provides. From the perspective of opportunity cost, when a business owner also has the talent to manage a business, he can choose to be a manager in his own business or to be a manager in another business. If he works as a manager in his own company, he loses the remuneration he can get from being a manager in other companies. This remuneration is the opportunity cost of being a manager in his own company. Therefore, from the perspective of opportunity cost, normal profits are costs and hidden costs. Economic profits do not include normal profits. When economic profits are 0, manufacturers still receive all normal profits.

The determination of normal profits is similar to the determination of wages. It is determined by the supply and demand of entrepreneurial talent, a factor of production. Entrepreneurial talent refers to the entrepreneur's ability to discover market opportunities in a manufacturer and arrange production factors to produce profits. Since enterprises have a high level of demand for entrepreneurial talent, and the supply of this special talent is inelastic, its price or normal profit level is higher than the general wage level.

Economies of scale refer to the fact that in the initial stage of enterprise production expansion, manufacturers improve their economic benefits due to the expansion of production scale. Diseconomies of scale mean that after an enterprise's production expands to a certain scale, economic benefits will decline if manufacturers continue to expand their production scale.

Economies of scale can be expressed as the multiple that a manufacturer's cost increases by less than the multiple that output increases, so the long-run average cost decreases. Diseconomies of scale can be expressed as the multiple that a manufacturer's costs increase by greater than the multiple that output increases, so long-term average costs rise. It is precisely due to the effects of economies of scale and diseconomies of scale that the long-term average cost curve exhibits U-shaped characteristics. Economies of scale and diseconomies of scale are both caused by manufacturers changing the scale of production, so they are also called intrinsic economies and intrinsic diseconomies.

From the characteristics of the number of manufacturers, the degree of product differentiation, the degree of price control by manufacturers, and the difficulty for manufacturers to enter and exit an industry, According to the intensity of competition, the market and the manufacturers in the market can be divided into four categories: perfect competition, monopolistic competition, oligopoly and perfect monopoly. Among them, perfect competition is the most competitive market and its market efficiency is also the highest.

A perfectly competitive market must meet the following four conditions: ① There are a large number of buyers and sellers in the market, and both buyers and sellers are price takers; ② The goods provided by every manufacturer in the market are completely homogeneous, that is, the goods provided by manufacturers are completely undifferentiated; ③All resources have complete liquidity, which means that manufacturers can enter or exit an industry completely freely and without difficulty; ④The information is complete. That is, every buyer and seller in the market has all the information related to their own economic decisions.

In real economic life, a truly competitive market does not exist. Although this ideal perfectly competitive market is difficult to exist in reality. However, a perfectly competitive market with optimal resource utilization and highest economic efficiency can be the ideal goal of economic policy. Therefore, economists always regard the analysis of perfectly competitive markets as the main content of market theory and use it as an ideal situation to compare with reality.

Consumer dominance refers to the decisive role that consumers play in the most basic economic issue of commodity production in an economic society.

This effect is manifested as: When consumers use money to buy goods, they cast a "currency vote" on the goods. The direction and quantity of "monetary votes" depend on consumers' preferences for different commodities, reflecting consumers' economic interests and wishes. In order to obtain maximum profits, producers must arrange production based on the "monetary votes" and decide what to produce, how to produce, how much to produce, etc. This shows that producers arrange production and provide products according to the will of consumers.

Western scholars believe that this kind of consumer-dominated economic relationship can promote the rational utilization of social economic resources, thereby maximizing satisfaction for consumers in the entire society. The long-term equilibrium state of a perfectly competitive market shows that society's economic resources are allocated in the most efficient manner, and all consumers in the economy gain maximum utility. Based on this, the analysis of the long-term equilibrium state of a perfectly competitive market in microeconomics is often used as a proof of consumer dominance.

Monopoly refers to a small number of enterprises that rely on the huge capital, sufficient production and operation scale and market share they control to Manipulate and control the production and circulation of goods in one or several departments through agreements, alliances, alliances, equity participation, etc., in order to obtain high profits.

A monopoly market refers to a market organization in which there is only one manufacturer in the entire industry. Specifically, the conditions for a monopoly market mainly include the following three points: ① There is only one manufacturer in the market that produces and sells goods; ②The goods produced and sold by this manufacturer do not have any close substitutes; ③It is extremely difficult or impossible for any other manufacturer to enter this industry. In such a market, any competitive factors are eliminated, and the exclusive monopoly controls the production and sales of the entire industry, so it can control and manipulate market prices.

The main reasons for the formation of monopoly are as follows: ①The exclusive manufacturer controls the supply of all resources or basic resources for the production of a certain commodity. This monopoly on production resources excludes the possibility of other manufacturers in the economy producing the same product. ②The exclusive manufacturer has the patent right to produce a certain product, which allows the exclusive manufacturer to monopolize the production of the product for a certain period of time. ③Government concession. The government often implements monopoly policies in certain industries, such as the railway transportation sector, the post and telecommunications sector, the power supply and water supply sector, etc., so exclusive companies become monopolies in these industries. ④Natural monopoly. Some industries have the following characteristics: (reasons for the formation of natural monopoly) On the one hand, from the perspective of enterprise production, enterprise production needs to be at a very high output level to achieve economies of scale, so that the output of the entire industry can only reach such a scale of production if it is produced by one enterprise. On the other hand, from the perspective of market demand, as long as the productivity of this enterprise is used on this scale of production, the entire market demand for this product can be met. Therefore, in the production of such products, there will always be a certain manufacturer in the industry that relies on its strong economic strength and other advantages to reach this production scale first, thus monopolizing the production and sales of the entire industry.

Natural monopoly is a traditional concept in economics. The early concept of natural monopoly was related to the concentration of resource conditions, mainly referring to the monopoly formed due to the concentration of resource conditions that makes competition impossible or unsuitable for competition. In the traditional sense, natural monopoly is closely related to economies of scale, which means that one enterprise can supply an item or service to the entire market at a cost lower than that of two or more enterprises. If there are economies of scale in the relevant output within the scope, natural monopoly It came into being.

One characteristic of natural monopoly is that the average cost of a manufacturer still decreases with the increase of output at a very high output level, that is, there are economies of scale. Because the production technology in these industries requires a large amount of fixed equipment, making fixed costs very large and variable costs relatively small, the average cost curve still declines at very high output levels. For example, line construction in electricity, water and telecommunications.

Natural monopoly also has monopoly inefficiency, so it requires government regulation. Government regulation of natural monopolies mainly includes the following two aspects: ①Marginal cost pricing method and other pricing methods; ②Capital return rate control. These government regulations can help improve the efficiency of economic operations, but they cannot fundamentally solve the inefficiency caused by natural monopoly.

Capital return control refers to the regulation of natural monopoly by setting a close to "competitive" or "fair" return on capital for monopolies. It is equivalent to the average return on capital that can be obtained by the same amount of capital under similar technology and similar risk conditions. Market rewards. Since the return on capital is controlled at an average level, the prices and profits of monopolies are controlled to a certain extent.

However, the implementation of capital return control will also bring some problems and troubles, such as It is difficult to determine the definition and objective standards of a “fair” return on capital, and it is difficult to estimate the amount of undepreciated capital of a manufacturer as a determinant of return on capital. In addition, there is a regulatory lag, which affects the effectiveness of capital return regulation. Therefore, in real economic life, it is difficult to use the method of capital return control to provide government control over the pricing behavior of monopolies.

A monopolistic competition market refers to a market organization in which many manufacturers produce and sell differentiated products of the same kind. Specifically, the conditions for a monopolistic competition market mainly include the following three points: ① The number of companies in the production group is so large that each manufacturer believes that the impact of its actions is very small and will not attract the attention and reaction of competitors. Therefore, it will not be affected by any retaliatory measures by competitors. ② There are a large number of companies in the production group that produce different products of the same kind, and these products are very close substitutes for each other. ③The production scale of manufacturers is relatively small, so it is easier to enter and exit a production group.

Many economists believe that the existence of monopolistic competition generally has more advantages than disadvantages. In reality, monopolistic competition is also a ubiquitous market structure, such as the light industrial product market.

Oligopoly market, also known as oligopoly market, refers to a market organization in which a few manufacturers control the production and sales of products in the entire market. The output of these few manufacturers accounts for a large proportion of the industry's supply, thereby controlling the supply of the entire industry and also having certain control over market prices.

The basic characteristics of the oligopoly market are: ①The number of manufacturers is very small, and it is difficult for new manufacturers to join the industry; ② Products can be homogeneous or different, and there is also fierce competition among manufacturers; ③Manufacturers are also interdependent, and when making decisions, they must consider the impact of the decision on the opponent and the opponent's reaction; ④Manufacturer behavior is uncertain because the reactions of competitors are independent and difficult to predict.

Oligopoly is a market structure that contains both monopoly and competition factors and is closer to a complete monopoly.

It is an index used to measure the degree of monopoly power that a manufacturer with monopoly power has in terms of price.

The Lerner index reflects the strength of monopoly power in the market by measuring the deviation between |price and marginal cost. The Lerner index changes between 0 and 1 (the reason is that the profit-maximizing choice of a monopoly cannot occur in the area of ​​inelastic demand, ed ≥ 1). The larger the Lerner index, the stronger the monopoly power in the market; vice versa; , the higher the level of competition. When the market is perfectly competitive, P=MC and the Lerner index is 0.

In a monopolistic competition market, there is both price competition and non-price competition among manufacturers. As far as price competition is concerned, although it can benefit some manufacturers, in the long run, price competition will lead to continued decline in product prices and ultimately the disappearance of manufacturers' profits. Therefore, non-price competition has become another competitive method commonly adopted by monopolistic competition manufacturers.

In a monopolistic competition market, since the products produced by each manufacturer are different, monopolistic competition manufacturers often expand the market sales of their products by improving product quality, carefully designing trademarks and packaging, improving after-sales service, and advertising. Share, this is non-price competition. In a perfectly competitive market, since the products produced by each manufacturer are completely homogeneous, there is no non-price competition between manufacturers.

In a monopolistic competition market, manufacturers still engage in non-price competition to maximize profits. There is a cost to engage in non-price competition. The total cost incurred by manufacturers in conducting non-price competition must be less than the total revenue increased thereby, otherwise manufacturers will not engage in non-price competition. Obviously, the profit maximization principle of MR=MC still applies to non-price competition.

Economists have different opinions on non-price competition: Some economists believe that non-price competition, as a form of competition between manufacturers, strengthens the degree of competition in the market. Moreover, some specific practices of non-price competition objectively meet certain needs of consumers. Some economists believe that non-price competition increases consumers' dependence on certain products, thereby allowing manufacturers to strengthen their monopoly on their products.

Price discrimination means that because a monopolist has some kind of monopoly power, it can charge different prices for similar products it sells to maximize its profits. Price discrimination does not only exist among monopolistic manufacturers. Any manufacturer that has price influence or control over its product market can adopt price discrimination. For a monopoly manufacturer to practice price discrimination, the following two basic conditions must be met: ①Consumers in the market have different preferences, and these different preferences can be distinguished. ②Different consumer groups or different sales markets are isolated from each other.

Price discrimination can be divided into first-degree price discrimination, second-degree price discrimination and third-degree price discrimination. Among them, first-degree price discrimination is also called perfect price discrimination, which means that manufacturers sell each unit of product at the highest price that consumers are willing to pay; Second-level price discrimination means that manufacturers divide the demand curve into different segments and then charge different prices based on different purchase quantities; Third-degree price discrimination refers to manufacturers charging different prices for the same product in different markets (or to different consumer groups).

Price discrimination means that because a monopolist has some kind of monopoly power, it can charge different prices for similar products it sells to maximize its profits. Price discrimination does not only exist among monopolistic manufacturers. Any manufacturer that has price influence or control over its product market can adopt price discrimination. For a monopoly manufacturer to practice price discrimination, the following two basic conditions must be met: ①Consumers in the market have different preferences, and these different preferences can be distinguished. ②Different consumer groups or sales markets are isolated from each other.

Price discrimination can be divided into first-degree price discrimination, second-degree price discrimination and third-degree price discrimination. Among them, first-degree price discrimination is also called perfect price discrimination, which means that manufacturers sell each unit of product at the highest price that consumers are willing to pay; Compared with second- and third-level price discrimination, first-level price discrimination is efficient and has no deadweight loss, but it is unfair to consumers.

You can also add a picture and analyze it using a method similar to second-level price discrimination.

Price discrimination means that because a monopolist has some kind of monopoly power, it can charge different prices for similar products it sells to maximize its profits. For a monopoly manufacturer to practice price discrimination, the following two basic conditions must be met: ①Consumers in the market have different preferences, and these different preferences can be distinguished. ②Different consumer groups or sales markets are isolated from each other.

Price discrimination can be divided into first-degree price discrimination, second-degree price discrimination and third-degree price discrimination. Price discrimination does not only exist among monopolistic manufacturers. Any manufacturer that has price influence or control over its product market can adopt price discrimination. Among them, third-level price discrimination means that manufacturers charge different prices for the same product in different markets (or to different consumer groups). Third degree price discrimination means that a firm sells its product at different prices to different people, but each unit of the good is sold at the same price to a given group.

When firms set prices according to third-degree price discrimination, the marginal revenue in the two markets is equal, that is. MR1=MR2,

The following conclusion can be drawn: if e1= e2, then P1=P2; if e1>e2, then P1<P2; ​​if e1<e2, then P1>P2. Under third-level price discrimination, in markets with greater price elasticity of demand, product prices are lower; in markets with lower price elasticity of demand, product prices are higher.

The Cournot model, also known as the "two-head model", is an early oligopoly model. It was proposed by the French economist Cournot in 1838. The Cournot model is a simple model with only two oligopoly manufacturers, and its conclusions can be easily extended to the case of three or more oligopoly manufacturers.

The Cournot model assumes that there are only two manufacturers A and B in the market that produce and sell the same product with zero cost. The two manufacturers accurately understand the market demand curve. When they know the output of the other party, they are each sure that they can provide their own products. The output that brings the maximum profit, Under this assumption, the equilibrium output of A and B is equal to 1/3 of the market demand, and the equilibrium output of the entire industry is equal to 2/3 of the market demand. Extending the conclusion of this model to m manufacturers, the equilibrium output of each manufacturer is equal to 1/m 1 of the market's maximum demand, and the equilibrium output of the entire industry is equal to m/m 1 of the market's maximum demand.

The Bertrand model was proposed by economist Bertrand and is a price competition model. In this model, each manufacturer assumes that its competitors' prices are fixed, and by cutting its own prices, it can capture all of its competitors' business. Therefore, if the cost functions of two manufacturers are the same, the result of duopoly competition for customers is that price equals marginal cost and the manufacturer's profit is zero. However, if the costs of two companies are different, in the long run, the low-cost company will crowd out the high-cost company.

The Stackelberg model is an analytical paradigm proposed by German economist Stackelberg in a 1934 paper.

Different from the Cournot model and the Bertrand model, the Stackelberg model believes that the positions between manufacturers are not symmetrical. The asymmetry of market positions causes asymmetry in the decision-making sequence. Usually small companies observe it first. The behavior of large enterprises will then determine their own countermeasures. The Stackelberg model is usually used to describe an industry in which there is a dominant enterprise, and in addition, there are several small enterprises. Those small businesses usually wait for the dominant firm to announce its production plans and then adjust their output accordingly. Therefore, the Stackelberg model is also called the "leader-follower" model.

The key difference between the price leadership model and the Cournot and Stackelberg models is that it chooses price as the decision variable.

According to this model, assuming that the price determined by the leader is P, the followers accept P as the established price, and then choose its profit-maximizing output, The leader makes output choices based on the followers' choices.

Induced demand refers to the enterprise's demand for production factors caused by consumer demand for products. This demand comes from manufacturers. Relatively speaking, consumer demand for products is called direct demand.

Enterprises' demand for production factors is different from consumers' demand for products. In the product market, demand comes from consumers, and consumers purchase products to obtain satisfaction from their own consumption. The purchase process ends here. In the production factors market, demand comes from enterprises, and enterprises purchase production factors for production and obtain profits from them. The purchase of factors of production by an enterprise is not the end of an economic act.

Whether a company can make profits does not depend on itself, but on consumer demand and whether consumers are willing to pay a sufficient price for its products. If there is no consumer demand for products, manufacturers will not be able to obtain income from production and sales, and thus will not purchase production materials and products. In other words, consumers' direct demand for products leads to and derives manufacturers' demand for production factors.

The value of marginal product refers to the product value added by a manufacturer adding one unit of input of a certain production factor under conditions of perfect competition, when the input amounts of other production factors are fixed. It is equal to the combination of marginal product (MP) and price (P). Product, that is: VMP =MP·P

Because of the law of diminishing marginal returns, as the input of this variable production factor increases, its marginal product decreases. As a result, the value of marginal product gradually decreases, so the value curve of marginal product is a curve sloping from the upper left to the lower right.

Under conditions of perfect competition, the manufacturer's marginal revenue (MR) is equal to price, and the marginal product value (VMP) curve and the marginal revenue product (MRP) curve coincide with each other. The marginal product value (VMP) curve of the production factor is also its marginal value. The revenue product (MRP) curve is the manufacturer's demand curve for this production factor under conditions of perfect competition. Under imperfectly competitive market conditions, manufacturers face a sloping demand curve, with diminishing marginal revenue (MR) and marginal revenue less than price. Therefore, the marginal revenue product (MRP) curve and the value of marginal product (VMP) curve no longer overlap, and marginal revenue The product (MRP) must be less than the value of the marginal product (VMP). At this time, only the manufacturer's marginal revenue product curve represents the demand curve for this type of production factor under imperfectly competitive market conditions.

Marginal revenue product refers to the product value added by a manufacturer increasing the input of a certain production factor by one unit when the input amounts of other production factors are fixed. It is equal to the product of marginal product (MP) and marginal revenue (MR), that is: MRP=MR·MP

Marginal revenue product is affected by two factors: marginal product and marginal revenue. Because of the law of diminishing marginal returns, as the input of variable production factors increases, its marginal product (MP) decreases. Marginal revenue (MR) depends on different market curves. Under conditions of perfect competition, the manufacturer's marginal revenue (MR) is equal to price, the marginal revenue product curve (MRP) and the value of marginal product (VMP) curve coincide with each other, and the two curves decline at the same rate; Under imperfectly competitive market conditions, manufacturers face a sloping demand curve, with diminishing marginal revenue (MR) and marginal revenue less than price. Therefore, the marginal revenue product (MRP) curve and the value of marginal product (VMP) curve no longer overlap. The former is Decline at a faster rate. In short, the marginal revenue product (MRP) is decreasing, and the marginal revenue product (MRP) curve slopes downward to the right.

The marginal revenue product curve reflects the benefit that a manufacturer brings to it by adding one unit of this factor of production. It is based on this revenue that the manufacturer determines its demand and price for the factor. Therefore, the marginal revenue product curve is the manufacturer's demand curve for this factor of production. Its intersection with the factor supply curve determines the equilibrium price and quantity of the production factor. At this point, the marginal revenue of a production factor is equal to the marginal cost of that production factor, and the manufacturer maximizes profits.

Euler's theorem, also known as the net exhaustion theorem of output allocation, means that under conditions of perfect competition, assuming constant returns to scale in the long run, all products are just enough to be allocated to various factors.

Assume that there are two production factors, labor L and capital K, the production function is Q=Q(L,K), and the production scale remains unchanged, then there is: This is Euler's theorem.

It shows that under the given conditions, the total product Q is just enough to be allocated to the labor factor L and the capital factor K. Euler's theorem can also be expressed as: Q=K·MPK L·MPL

Partial equilibrium refers to the equilibrium of a specific product market or factor market, assuming that other markets remain unchanged. Partial equilibrium analysis studies a single product market or factor market. Its research method is to "take out" a certain market under consideration from the entire market of the interconnected economic system and study it separately. (definition, object, method)

Partial equilibrium is the equilibrium state of a single consumer, a manufacturer or an industry, a product market or a factor market in the economic system. It only considers the mutual influence and interaction of various factors contained in this part itself, and how to finally reach an equilibrium state. (perfect definition) For example, when studying the equilibrium of a certain product market, you can assume that the supply, demand and price of other products remain unchanged, and only consider how the sales volume and price of the product reach equilibrium under the action of its own two opposite forces of supply and demand. .

Partial equilibrium analysis is based on the assumption of "other things being equal" and therefore has certain limitations, but this does not affect its effectiveness in studying many issues. Under certain reasonable assumptions, not only can the purpose of explaining the problem be achieved, but the problem can also be simplified and made clear.

General equilibrium refers to a state in which supply and demand in all markets reach equilibrium at the same time in an economic system. General equilibrium analysis starts from the perspective of the behavior of microeconomic entities and examines the conditions required for the supply and demand of each product and each factor to reach equilibrium at the same time, the corresponding equilibrium supply and volume, and the value of the equilibrium price. . (definition, object)

According to general equilibrium analysis, the price of a certain commodity not only depends on its own supply and demand conditions, but is also affected by the prices and supply and demand conditions of other commodities. Therefore, the equilibrium price and supply and demand of a certain commodity can only be achieved when the prices and supply and demand of all commodities reach equilibrium at the same time. (realization conditions)

In contrast to Empirical economics studies how the actual economic system operates. It makes relevant assumptions about economic behavior, analyzes and states economic behavior and its consequences based on the assumptions, and attempts to test the conclusions. Its research content includes at least "description", "explanation" and "prediction", respectively answering the questions of "what", "why" and "how".

Normative economics studies the question of "what should be", that is, starting from certain social value judgment standards, evaluating the operation of an economic system based on these standards, and further explaining how an economic system should operate, and proposing corresponding measures for this purpose. economic policy.

Welfare economics studies the relationship between the resource allocation of the entire economy (the resource allocation of the social system) and individual welfare under certain social value judgment standard conditions (social system). In particular, the relationship between the resource allocation of the market economic system (the resource allocation of the capitalist system) and welfare, as well as various policy issues related to this.

In 1874, French economist Walras established a theory known as Walrasian general equilibrium. Walrasian general equilibrium refers to the situation where the total amount of excess demand and excess supply in the entire market must be equal.

Walrasian general equilibrium has the following characteristics: ① Continuous market clearing. In a perfectly competitive economy, prices are perfectly elastic. Any imbalance between supply and demand in the market will cause commodity prices and factor prices to be quickly adjusted by rational economic people pursuing the maximization of their own interests. Therefore, there will always be a set of prices that can clear all markets in a timely manner. ②The only mechanism that regulates the economy toward general equilibrium is the market price mechanism. Relying on price mechanism adjustment can achieve continuous market clearing. ③The resources in an economy will always be fully employed. There are no long-term fluctuations in employment and output that deviate from the full-employment equilibrium position. There are only changes in the overall price level with changes in the quantity of money.

Walras's law, also known as Walras's law, means that in a pure exchange economy with perfect competition, the total value of society's excess demand for commodities is equal to zero at any price level.

Walras chose a "general equivalent" among n prices to measure the prices of other commodities, and simplified it to get an identity: ΣPiQi=ΣPiSi=0. This identity is called Walras' law.

It can be concluded from Walras' law that there is a set of prices such that supply and demand in all markets are exactly equal, that is, there is a general equilibrium of the entire economic system.

But Walras’ proof logic about the existence of general equilibrium is wrong.

If the status of a given resource allocation is changed, and this change makes at least one person's situation better, while no one else's situation becomes worse, then this change is considered to increase social welfare, or is called Pareto improvement. . Using the Pareto criterion and Pareto improvement, the optimal resource allocation can be defined, that is, if for a given resource allocation state, all Pareto improvements do not exist, That is, in this state, any change cannot make at least one person's situation better without making anyone else's situation worse. This resource allocation state is called Pareto optimal state.

Pareto optimal state is also called Pareto optimality, Pareto optimal state or Pareto optimal principle, (Pareto efficiency), etc., It is a theory in modern Western welfare economics that discusses the conditions for optimal allocation of production resources. It was proposed by Italian economist and sociologist Pareto, hence its name.

Pareto believed that the optimal state should be a state in which any change to the state cannot make at least one person better off without making anyone else worse off. This state is a very efficient state.

Pareto optimal state includes three conditions: ① Optimal conditions for exchange: The marginal rate of substitution between any two commodities must be equal for any two consumers who purchase these two commodities. ② Optimal conditions for production: The marginal technical substitution rate between any two factors of production must be equal for any two producers using these two factors of production. ③ Optimal conditions for exchange and production: Among all products, the marginal substitution rate of any two products is equal to the marginal conversion rate of these two products in production.

If all markets (product markets and production factor markets) are perfectly competitive, the role of the market mechanism will eventually lead to optimal allocation of production resources. (The first law of welfare economics: means that under conditions of perfect competition, market competition can effectively regulate economic activities through the price mechanism, thereby achieving Pareto optimal resource allocation) In the ideal state of Pareto optimality, limited production resources are allocated in the most efficient manner, with the highest output, and the distribution of products also maximizes the overall welfare of social members.

Economies of scope refer to economies brought about by the scope of a manufacturer rather than its scale. That is, when the cost of a single enterprise producing two products at the same time is lower than the sum of the costs required to produce each product separately (or when the joint output of a single enterprise exceeds the output that can be achieved by each producing one product), The situation that exists is called economies of scope. (Scope diseconomies are concave curves)

economies of scope

The difference between economies of scale and economies of scope

It means that under conditions of perfect competition, market competition can effectively regulate economic activities through the price mechanism, thereby achieving Pareto optimal resource allocation.

A perfectly competitive market is Pareto optimal

definition

Policy Implications

Arrow's Impossibility Theorem is a theorem derived by Arrow when he analyzed the general equilibrium of the market. Arrow believes that it is impossible to gather individual preferences through voting and form rational social preferences. That is, in non-dictatorship situations, it is impossible to have a social welfare function that applies to all types of personal preferences. This is the famous Arrow's impossibility theorem.

Arrow's Impossibility Theorem shows that it is impossible to choose a common and consistent order among various personal preferences relying on the voting principle of a simple majority. In this way, a reasonable decision on public goods can only come from a competent public authority. It is generally impossible to achieve a coordinated collective choice result through the voting process.

Public choice theory is an emerging interdisciplinary subject between economics and political science. It is a theory that uses economic analysis methods to study how political decision-making mechanisms operate.

Public choice theory believes that human society consists of two markets, one is the economic market and the other is the political market. This theory further believes that the same person is active in the economic market and the political market. There is no reason to think that the same person will act according to two different behavioral motives in two different markets. That is, in the economic market, they pursue the maximization of their own interests, while in the political market, they are altruistic and consciously pursue the maximization of public interests. Public choice theory attempts to reintegrate the two aspects of human behavior into a unified analytical framework or theoretical model, and uses economic analysis methods and basic assumptions to unify the two aspects of human behavior. This will dismantle the wall erected by traditional economics between the two disciplines of economics and political science, and create a new political economics system that integrates the two disciplines.

The basic characteristics of public choice theory are: expanding the research objects of economics to traditional areas that were previously regarded as external factors by economists and studied by political science; Taking human economic behavior and political behavior as a unified research object, starting from the perspective of empirical analysis, taking the economic man as the basic assumption and premise, and using the cost-benefit analysis method of microeconomics, Explain the relationship between personal preferences and government public choices, and study how consumers as voters express their wishes on the supply decisions of public goods or services.

partial equilibrium

general equilibrium

Connection: Both study the relationship between supply, demand and price in the market. Partial equilibrium is the basis of general equilibrium.

the difference: Partial equilibrium assumes that the market is independent and considers the equilibrium of a single market in isolation; general equilibrium is the equilibrium of all markets based on the condition that there are connections and influences between markets. Partial equilibrium studies individuals; general equilibrium studies the whole Partial equilibrium is relatively simple; general equilibrium is more complex.

Empirical analysis studies how the actual economic system operates. It makes relevant assumptions about economic behavior, analyzes and states economic behavior and its consequences based on the assumptions, and attempts to test the conclusions. Its research content includes at least "description", "explanation" and "prediction", respectively answering the questions of "what", "why" and "how".

Normative analysis studies the question of "what should be", that is, starting from certain social value judgment standards, evaluating the operation of an economic system based on these standards, and further explaining how an economic system should operate, and proposing corresponding measures for this purpose. economic policy.

Connection: Normative analysis is based on empirical analysis, and empirical analysis is guided by normative analysis.

Difference: (If you want to standardize the definition of analysis, there is no objectivity) The problems to be solved are different. "What is", "Why", "What would be"/"How should be" Normative analysis starts from certain social value judgment standards and evaluates the operation of an economic system based on these standards, while empirical analysis does not make a good or bad evaluation; There is no objectivity in normative analysis, but there is objectivity in empirical analysis.

The core conclusion of general equilibrium is the existence of general equilibrium

Nash equilibrium may not be Pareto optimal (prisoner's dilemma)

The Thirteenth National Congress’s formulation of income reform: “Reflect social equity while promoting efficiency improvements.”

The Fourteenth National Congress’s formulation of income reform: “Taking into account both efficiency and fairness”

The 15th National Congress of the Communist Party of China proposed income reform: “Adhere to giving priority to efficiency while taking into account fairness”

The 16th National Congress of the Communist Party of China proposed income reform: “The primary distribution should focus on efficiency, while the redistribution should focus on fairness.”

The 17th National Congress of the Communist Party of China proposed income reform: “Both primary distribution and redistribution must deal with the relationship between efficiency and fairness, and redistribution pays more attention to fairness.”

The 18th National Congress of the Communist Party of China proposed income reform: "Adjust the national income distribution pattern, strive to solve the problem of large income distribution gaps, make development results more and more equitably benefit all people, and make steady progress towards common prosperity."

Game theory is the science that studies how to make strategic decisions and take strategic actions in a strategic environment

In some special games, one player's optimal strategy may not depend on the choices of other players. That is to say, no matter what strategies other players adopt, the optimal strategy of this player is unique. Such a strategy is called a dominant strategy. This strategic equilibrium is called dominant strategy equilibrium.

The dominant strategy equilibrium must be a Nash equilibrium

Nash equilibrium is not necessarily a dominant strategy equilibrium

Nash equilibrium, also known as non-cooperative equilibrium, is an important term in game theory and is named after the proposer, John Nash. A Nash equilibrium refers to a set of strategies in which each player is convinced that he has chosen the best strategy given the strategies of his competitors. Nash equilibrium is a strategy combination composed of the optimal strategies of all participants. That is to say, given the strategies of other participants, no individual has the initiative to choose other strategies, so no one has the initiative to break this equilibrium.

The dominant strategy equilibrium must be a Nash equilibrium

Nash equilibrium is not necessarily a dominant strategy equilibrium

The optimal strategy of manufacturer A under the condition that manufacturer B chooses to cooperate, that is, non-cooperation is called the conditional advantage strategy of manufacturer A.

Mixed strategy means that in the game, the decision-making content of the game player is not a deterministic specific strategy. Rather, it is a strategy with a probability distribution chosen randomly among some strategies. There are two decision-making principles in the case of mixed strategies: ① Game participants do not let each other know or guess their choices, so they must use randomness to choose strategies when making decisions and avoid any regular choices. ②The probability of game participants choosing each strategy must be such that the other party has no chance to take advantage of it, that is, the other party cannot gain the upper hand in the game through a certain strategy with a targeted tendency.

In the case of mixed strategies, Nash equilibria always exist.

Repeated games are a special kind of game in which the same structure of the game is repeated many times, even infinitely. Among them, each game is called a "stage game". In each stage of the game, players may or may not act simultaneously. Because the history of other players' past actions is observable, in a repeated game, each player can make the strategy he chooses at each stage dependent on the past actions of other players. As a result, there are more strategies to choose from, and the equilibrium outcome may be quite different from a single game. Repeated games are an important part of dynamic games. They can be repeated games with complete information or repeated games with incomplete information.

The content of the tit-for-tat strategy is that all members cooperate at the beginning. For each member, as long as other members are cooperative, he will continue to cooperate. But as long as one member reneges on the cooperation agreement and adopts a non-cooperative strategy, the other members will adopt a "tit for tat" punishment and retaliation strategy. That is, other members adopt the same non-cooperative strategy and continue this non-cooperative strategy in repeated games to punish and retaliate against the first person to break the agreement.

In game theory analysis, the cooperation of oligarchic manufacturers is unstable and can easily fall into the "prisoner's dilemma". In an infinitely repeated game with a "tit for tat" strategy, all oligopoly manufacturers will abide by the agreement and adopt a cooperative strategy.

Credibility refers to whether the player who acts first in a dynamic game should believe that the player who acts later will take actions that are beneficial or unfavorable to itself. Using the language of game theory to describe an untrustworthy threat refers to a threat that when it is the threat actor's turn to act, he does not act in accordance with the original statement out of consideration for his own interests.

Market failure refers to the fact that a perfectly competitive market and a series of other idealized assumptions do not exist in reality. As a result, the market mechanism in reality cannot achieve effective allocation of resources and cannot achieve Pareto optimal state in many situations. Monopoly, external influences, public goods and incomplete information are all important causes and main manifestations of market failure.

Western economists believe that in real society, various reasons will lead to market failure. That is, the operation of the market mechanism cannot achieve the optimal allocation of social resources and cannot achieve social goals such as maximizing social and economic welfare. Therefore, the role of the market mechanism is not omnipotent and must be overcome through government intervention in the economy.

Deadweight loss, also known as social net loss, refers to the social cost caused by the market not operating optimally, that is, the sum of consumer surplus and producer surplus lost when the market deviates from competitive equilibrium.

Net social loss is the part that producers, consumers and the government do not receive due to factors such as monopoly, tariffs, quotas, taxes or other distortions, which prevents resources from being allocated optimally. For example, when a monopoly raises prices, consumers will reduce consumption, which will lead to the loss of consumer surplus that could have been achieved. This social loss is a net social loss.

Externality refers to the impact of an economic activity subject on the economic environment in which it operates. The impact of externalities will cause inconsistencies between private costs and social costs, or between private benefits and social benefits. Although this cost and benefit difference will affect each other, it will not be compensated accordingly, so it is easy to cause market failure.

The direction and effect of externalities have two sides, and can be divided into external economies and external diseconomies. Those externalities that can bring benefits to society and other individuals or reduce costs to society and other individuals are called external economies, which are externalities that are beneficial to individuals or society; Those externalities that can increase social and other personal costs or reduce social and other personal benefits are called external diseconomies, which are externalities that are detrimental to individuals or society. Welfare economics believes that unless the external economic effects and external diseconomic effects in society exactly offset each other, Otherwise, the existence of externalities will make it impossible to achieve the Pareto optimal state, and thus the maximum welfare of individuals and society cannot be achieved.

The theory of externalities can provide some suggestions for economic policy. It provides a strong basis for government intervention in the economy. The government can formulate corresponding economic policies based on the direction and degree of influence of externalities, and use corresponding economic means to eliminate the impact of externalities on cost and benefit differences, and achieve the optimal allocation of resources and fair and reasonable income distribution. .

Methods to correct externalities include using taxes and subsidies, corporate mergers, imposing property taxes, etc.

When it comes to solving market failures caused by externalities, the traditional approach is for governments to provide intervention. Intervention can take the form of taxation, For example, taxes should be levied on manufacturers that produce negative external impacts, allowing them to pay the government the increased social costs caused by pollution, internalizing the external costs caused by manufacturers, and prompting them to eliminate or reduce negative external impacts. The government should subsidize manufacturers that have positive external effects. This is the Pigouvian tax.

Although the use of Pigovian taxes can solve the problem of externalities to a certain extent, this type of policy cannot completely eliminate externalities, and its implementation has considerable opportunity costs. For example, when the government levies taxes on enterprises that generate negative externalities, the government must be able to directly measure the external activities of the enterprises to determine the amount of the tax, which is obviously very costly.

The Coase theorem provides a new way of thinking for solving externalities. It emphasizes the importance of clear ownership and believes that government intervention is not needed. Even if there are externalities, as long as the property rights are clear and their transaction costs are zero or very small, the final result of the market equilibrium will be efficient no matter what the configuration of property rights is at the beginning.

The Coase theorem is a property rights theory that Stigler summarized based on the content of Coase's paper "The Problem of Social Cost" published in the 1960s. The content is: Even if there are externalities, as long as property rights are clear and their transaction costs are zero or very small, the final result of market equilibrium will be efficient no matter what the configuration of property rights is at the beginning.

The Coase theorem further expands the role of the "invisible hand". According to this theorem, as long as those assumptions hold, external influences cannot lead to misallocation of resources. Or from another perspective, under given conditions, the market force is strong enough to always solve the external impact in the most economical way, so that the Pareto optimal state can still be achieved. Western scholars believe that clear property rights and their transfer can align private costs (or benefits) with social costs (or benefits). Taking the pollution problem as an example, the Coase theorem means that once the required conditions are met, the polluter's marginal cost curve will tend to rise until it completely coincides with the society's marginal cost curve, so that the polluter's profit maximizes output will drop to the socially optimal output level.

Public goods correspond to private goods and are items for collective consumption. Samuelson and Nordhaus gave the following definition of public goods: "Public goods are goods whose benefits are indivisibly spread to all members of society, regardless of whether individuals want to purchase them." Efficient provision of public goods often requires government action.”

Public goods have two characteristics corresponding to private goods: ①Non-exclusive. A public good can be consumed by more than one person at the same time. Any person's consumption of a certain public good does not exclude other people from consuming this good, nor does it reduce the satisfaction that others obtain from it. ②Non-competitiveness. Public goods are provided to all consumers and cannot be divided among consumers.

Since public goods are neither excludable nor contestable, people who can benefit from public goods can avoid paying for them, which is called the "free rider problem." When it comes to the provision of public goods, people always hope that others will provide them and enjoy the benefits themselves. To provide public goods efficiently, government action is often required.

The free-rider problem was first proposed by American economist Olson in his book "The Logic of Collective Action: Public Interest and Group Theory" published in 1965. Its basic meaning is that everyone wants to enjoy the services of public goods without paying any cost, or only paying a very low cost price.

Since public goods are neither excludable nor contestable, people who can benefit from public goods can avoid paying for public goods, which is called the "free rider problem." When it comes to the provision of public goods, people always hope that others will provide them and enjoy the benefits themselves. To provide public goods efficiently, government action is often required.

Public resources refer to the type of resources whose ownership belongs to everyone and is public, but whose rights to use and benefit are relatively vague. For example, fish and shrimp in rivers, grass on public pastures, etc.

Public resources are different from public goods in that they are not exclusive in consumption but are competitive. Non-excludability means that one person’s consumption of a public resource cannot prevent others from consuming the same resource; Competitive nature means that anyone's use of resources will reduce the amount consumed by others. Especially when the number of users is large enough, public resources are highly competitive. The non-exclusiveness and competition of public resources will cause them to be over-consumed and destroyed. This is the tragedy of the commons.

The solution to the tragedy of the commons is to adopt certain methods to limit the consumption of public resources, such as limiting the number of livestock grazing on the commons.

Adverse selection means that when the information between buyers and sellers is asymmetric, poor products will always drive good products out of the market; In other words, the party with information advantage always tends to make choices that are as beneficial to itself as possible to the detriment of others in transactions. The existence of adverse selection prevents market prices from truly reflecting market supply and demand, resulting in inefficient market resource allocation.

American economist Akerlof proposed the famous used car market model in his paper "Lemon Market: Quality Uncertainty and Market Mechanism", pioneering the research on adverse selection theory. He examined a used-car market filled with defective products. Suppose there is a batch of old cars. Only the seller knows the quality of each car. The most reasonable way to make the transaction happen is to price according to the average quality level. This means that the prices of some of the good cars are underestimated, so the sellers are unwilling to sell according to the average price, or the sellers "rationally" take away the good cars and let the buyers choose arbitrarily among the remaining bad cars. If the buyer understands this truth, he will not accept the seller's price, but will only be willing to offer a lower price. This will then likely lead to another round of bidding and bargaining: the seller will take away some of the better cars, and the buyer will lower his willing price again. The final equilibrium may be such that all good cars cannot be sold. Obviously, this is inefficient because the final volume is less than ideal for both supply and demand.

Adverse selection often occurs in economic life and hinders the market's allocation of resources. The main methods to solve the adverse selection problem are: the government makes necessary intervention in the market and uses market signals.

Moral hazard refers to a behavior in which after two parties sign a transaction contract, the party with the advantage of information damages the other party's benefits in order to maximize its own benefits without bearing the consequences. It is a situation in which one party in the market cannot detect the actions of the other party, also known as the hidden action problem. The existence of moral hazard not only causes losses to the party at an information disadvantage, but also destroys the original market equilibrium and leads to inefficiency in resource allocation.

The principal-agent problem means that the expected goals of the owner (principal) and the operator (agent) are inconsistent, resulting in discord and even conflict between their codes of conduct and value orientation. Due to incomplete information, the principal often does not know what action the agent is going to take, or even if he knows that the agent is taking a certain action, he cannot observe and measure the agent's effort when engaging in this action. At the same time, the interest division relationship between the two usually causes the agent not to act completely in accordance with the principal's intentions.

The most effective way to solve the principal-agent problem is to implement an optimal contract, That is, a contract in which the principal spends the minimum cost to enable the agent to take efficient actions to achieve the principal's goals.

Incomplete information means that the economic parties cannot fully grasp the information and cannot fully utilize the information related to the transaction.

Information asymmetry is when some participants in the market have information but other participants do not. Or one party has more information and the other party has less information.

It should be noted that incomplete information and information asymmetry are not the same. There is a difference between the two. Incomplete information means that economic actors face the constraints of insufficient information when making decisions; Information asymmetry refers to the different levels of information mastery and understanding between the two parties to the transaction object.

In economics, efficiency wage theory refers to a theory in which employers actively pay wages to employees above the market equilibrium level in order to increase worker productivity. The basic point of view of efficiency wage theory is that employers must use wages as a means to stimulate employees to work hard. The effort of employees at work determines the economic efficiency of production and operations. If employees are highly motivated, production efficiency will be high, and vice versa; The level of effort an employee puts in at work is largely determined by the amount of compensation the employee receives. If an employer pays its employees a higher wage than employees doing the same type of work in other companies, employees will think that their job is a "good job" with a future and work hard to keep this good job. It is conducive to improving the efficiency of enterprises.

According to this theory, economists conclude that employers are reluctant to lower employees' wages unless they have to, because this is not conducive to stimulating workers' enthusiasm for production. Not only that, the wage level in society as a whole has a rising trend. High wage rates can stimulate high efficiency. The improvement of efficiency will inevitably lead to a decrease in the demand for labor, so the existence of unemployment in society is understandable.

Macroeconomics is the symmetry of "microeconomics", and macroeconomics is a modern economic analysis method. It takes the overall national economy as the object of investigation and studies the determination and changes of relevant aggregates in economic life. It explains macro-overall issues in the economy such as unemployment, inflation, economic growth and fluctuations, balance of payments, exchange rate determination and changes, etc., so it is also called total economics.

The center and foundation of macroeconomics is the aggregate demand-aggregate supply model. Specifically, macroeconomics mainly includes aggregate demand theory, aggregate supply theory, unemployment and inflation theory, economic growth and economic fluctuation theory, open economy theory, and macroeconomic policy.

Gross domestic product (GDP) refers to the market value of all final products (goods and services) produced by an economic society (that is, a country or a region) using production factors in a certain period of time. GDP is the market value of final products produced within a country, so it is a regional concept, while the related gross national product (GNP) is a national concept. It refers to the market value of the final products produced by all the production factors owned by the citizens of a country or a region within a certain period of time.

First, GDP is the market value of final products and services produced within a country or region, and is a regional concept (different from GNP)

Second, GDP is the value of final products produced (rather than sold) within a certain period of time (usually one year) (GDP must create something)

Third, GDP measures the value of final products and services (not intermediate products)

Fourth, GDP is a concept of market value (measured in currency)

Fifth, the GDP indicator generally only involves the value caused by economic activities in the market (non-market activities such as housework and self-sufficiency are not included in GDP)

Sixth, GDP is a flow rather than a stock.

GDP is generally calculated using two methods: the expenditure method and the income method. GDP calculated using the expenditure method is equal to the sum of consumption, investment, government purchases and net exports; Gross domestic product calculated using the income approach is equal to the sum of wages, interest, rent, profits, indirect taxes, corporate transfers and depreciation.

Net domestic product, referred to as NDP, refers to the net value of final products (goods and services) produced by an economic society (i.e. a country or a region) using production factors within a certain period of time, calculated at market prices. Net domestic product is equal to gross domestic product minus the depreciation of fixed assets of all resident units, that is: NDP = GDP - capital depreciation.

From the dual perspectives of economics and sociology, the value of NDP is far greater than GDP. That is, the net domestic product indicator used to measure a country's economic aggregate is much superior to the gross domestic product indicator. Because compared to GDP, NDP takes into account the important role of "consumption" or "depreciation" in economic growth, and truly explains the relationship between production, growth, total value and consumption, efficiency, and net value.

Transfer payment refers to a payment from the government or enterprises that is not made for the purchase of goods and services during the current year. It includes charitable donations to non-profit organizations, consumer bad debts, agricultural product price subsidies, public debt interest and other government and corporate expenditures. This payment is not included in the GDP because it is not used to purchase goods and services, so it is called a transfer payment. Transfer payments are an integral part of the government budget. Fiscal surplus equals the balance of taxes minus the sum of government spending on goods and services and transfer payments.

Personal disposable income is the portion of income actually received by all individuals in a country (including private non-profit institutions) within a certain period (usually one year) that can be used for personal consumption or savings.

Personal income cannot be entirely at one's disposal because personal income tax must be paid. Personal income after tax is personal disposable income, that is, income that people can use for consumption and savings. Personal disposable income is considered the most important determinant of consumer spending. Therefore, personal disposable income is often used to measure a country's standard of living.

The savings-investment identity is a very important proposition in analyzing macroeconomic behavior. According to the basic formula of the composition of national income, the savings-investment identities of two-sector, three-sector and four-sector economies can be drawn as follows: I=S, I=S (T-G), I=S (T-G) (M-X Kr)

It should be noted that the savings-investment identity is a definitional identity and has no practical significance. The identity here is that from the perspective of national income accounting, as far as the entire economy is concerned, the ex post savings (private savings, government savings and foreign savings to the country) are equal to the ex post total investment. When analyzing macroeconomic equilibrium later, investment equals savings, which refers to the economic equilibrium state formed when planned investment (ex ante investment) equals planned savings (ex ante savings).

Potential output refers to the goods and services that can be produced at a reasonable and stable price level, using the best available technology, the lowest cost input combination, and when the utilization rate of capital and labor reaches full employment requirements. Potential output is determined by the status of production factors owned by a country, but it is not fixed. The way to increase potential output is to increase input of production factors such as labor and capital and promote technological progress.

Potential output is not an actual amount of output. It is generally believed that potential output is only possible when there is full employment. The difference between actual output and potential output is called the output gap.

There are many methods for estimating potential output, but they can be summarized into two main categories: One is to start from the time series nature of the actual output and use some quantitative analysis tools to directly process the actual output to estimate the potential output, such as the elimination of trend method, growth rate estimation method, etc. The estimation process of this type of method is simple and takes into account fewer factors. Its main disadvantage is that it does not reflect the supply side characteristics of potential output. The other type is the production function method. The production function law comprehensively considers the impact of production factor utilization and technological progress, but the estimation process is more complex.

Real GDP is the market value of all final products in the current year calculated based on prices in the previous year. It is different from nominal GDP, which is the market value of all final products in that year calculated at current year prices. Based on nominal GDP and real GDP, we can calculate the GDP conversion (deflation) index, GDP conversion (deflation) index = nominal GDP/real GDP The GDP deflator measures the price changes that occur between the base year and the year under examination and is based on the calculation of all final goods produced in the economy. It is therefore a broad-based price index that can be used to measure inflation.

The GDP deflator is the ratio of nominal GDP to real GDP. Nominal GDP is the market value of all final products in that year at current year prices. Real GDP is the market value of all final products in the current year calculated based on prices in the previous year. The formula of GDP conversion (deflator) index is: GDP conversion (deflator) index = nominal GDP/real GDP The GDP deflator measures the price changes that occur between the base year and the year under examination and is based on the calculation of all final goods produced in the economy. It is therefore a broad-based price index that can be used to measure inflation.

In addition to the GDP deflator, the consumer price index (CPI) is also a commonly used measure of the price level. The difference between the GDP conversion (deflator) index and the consumer price index (CPI) is: ①Different measurement objects: The GDP discount index measures the price of all final goods and services produced; The CPI only measures the price of goods and services purchased by consumers. Therefore, an increase in the price of products purchased by businesses or governments is reflected in the GDP deflator, not in the CPI. ②Different measurement ranges: The GDP conversion index only includes domestically produced items, and the prices of imported products are not reflected in the GDP conversion index; The CPI includes all items purchased by consumers. ③The aggregation methods are different: The GDP discount index determines variable weights, allowing the basket of goods to keep changing as the components of GDP change; The CPI determines fixed weights for the prices of different items and is calculated using a fixed basket of items. The GDP conversion index uses the transaction volume in the reporting period, while the CPI uses the transaction volume in the base period.

Green GDP is different from nominal GDP. It refers to the environmentally adjusted net domestic product after deducting various natural capital consumption from nominal GDP. It is also called green net domestic product (EDP).

The indicator of green GDP essentially represents the net positive effect of national economic growth. The higher the proportion of green GDP in GDP, the higher the positive effect of national economic growth and the lower the negative effect, and vice versa. Green GDP reveals the resource and environmental costs in the process of economic growth and has become an important concept and indicator for the transformation of economic growth models under the guidance of the new development concept.

Using GDP as the core indicator for calculating national economic activities has certain limitations. For example, it cannot reflect the efficiency, effectiveness and quality of economic growth, and it cannot reflect people's quality of life. Because of these limitations of the GDP indicator, international organizations have introduced the new concept of green GDP in the debate about GDP. The World Bank began to use the Green GDP National Accounting System in 1997 to measure the real wealth of a country (region). Although there are still many technical difficulties in the accounting of green GDP, this idea is in the right direction and is in line with the scientific concept of development.

Gross domestic product (GDP) refers to the market value of all final products (goods and services) produced by an economic society (that is, a country or a region) using production factors in a certain period of time. Gross National Product (GNP) refers to the market value of all final products (goods and services) produced by all production factors owned by the citizens of a country or a region within a certain period of time.

connect

the difference

Effective demand refers to the total social demand when the total supply price and total demand price of commodities reach equilibrium, and it includes consumer demand and investment demand. Full employment is the best state in which total social supply and total social demand are balanced. Insufficient effective demand means that total social demand is lower than the level of full employment. The lack of effective demand means that people’s income has not been fully converted into demand. Keynes tried to explain the lack of effective demand with three major psychological laws. Because the diminishing marginal propensity to consume (actually the average propensity to consume is correct) leads to insufficient consumer demand, the diminishing marginal efficiency of capital and liquidity preference lead to insufficient investment demand.

Marginal propensity to consume, abbreviated as MPC, refers to the proportion of an additional unit of income used to increase consumption. Its formula is: MPC=△C/△Y. In the formula, △C represents increased consumption, and △Y represents increased income.

According to Keynes, there is a psychological law between income and consumption: As income increases, consumption also increases, but consumption does not increase as much as income. Therefore, in general, the marginal propensity to consume fluctuates between 0 and 1. As one of the three basic psychological laws, Keynes used the law of diminishing marginal propensity to consume (actually it is the average propensity to consume) to analyze the causes of the Great Depression in the 1930s.

Marginal propensity to consume, abbreviated as MPC, refers to the proportion of an additional unit of income used to increase consumption. Its formula is: MPC=△C/△Y. In the formula, △C represents increased consumption, and △Y represents increased income. According to Keynes, there is a psychological law between income and consumption: As income increases, consumption also increases, but consumption does not increase as much as income. Therefore, in general, the marginal propensity to consume fluctuates between 0 and 1. As one of the three basic psychological laws, Keynes used the law of diminishing marginal propensity to consume (actually it is the average propensity to consume) to analyze the causes of the Great Depression in the 1930s.

Marginal propensity to save, abbreviated as MPS, refers to the proportion of an additional unit of income used to increase savings. Its formula is: MPS=△C/△Y. In the formula, △S represents increased savings, and △Y represents increased income. In general, the marginal propensity to save also fluctuates between 0 and 1.

Because all new income is used either for consumption or saving, the sum of the marginal propensity to save and the marginal propensity to consume is always 1, that is, MPC MPS=1

The investment multiplier is the ratio of the change in income to the change in investment expenditures that causes that change.

It can be seen that the greater the marginal propensity to consume or the smaller the marginal propensity to save, the greater the investment multiplier.

The various departments of the national economy are interconnected. An increase in investment will cause a multiple increase in income, while a decrease in investment will cause a multiple decrease in income. Since this was first proposed by Keynes, the investment multiplier is also called the "Keynesian multiplier".

Certain assumptions are required for the investment multiplier to work, namely: There are idle resources in society; Decisions to invest and save are independent of each other; An increase in the money supply accommodates an increase in spending.

The tax multiplier is the ratio between the change in income and the change in taxes that causes that change. There are two types of tax multipliers: one is the impact of changes in tax rates on total revenue, and the other is the impact of changes in the absolute amount of tax on total revenue. The tax multiplier is expressed as:

As can be seen, the tax multiplier is negative, which means that revenue decreases as taxes increase and increases as taxes decrease, The reason is that as taxes increase, people's disposable income decreases, resulting in a corresponding decrease in consumption. Therefore, tax changes and total expenditure changes are in opposite directions.

Certain assumptions are required for the tax multiplier to work, namely: There are idle resources in society; Decisions to invest and save are independent of each other; An increase in the money supply accommodates an increase in spending.

The balanced budget multiplier is the ratio between the change in national income and the change in government revenue and expenditure when government revenue and expenditure increase or decrease by equal amounts at the same time. Assume that government purchase expenditures and taxes each increase by the same amount, that is, when △g=△t,

The balanced budget multiplier is 1 under both quantitative and proportional taxes. According to the balanced budget multiplier, the role of fiscal policy can be summarized into three situations: ① The government’s increase in expenditure while reducing taxes will have a huge boost to national income; ② The government increases taxes while increasing expenditures and maintains a balanced budget, which has a small impact on national income; ③The government's increase in taxes while reducing expenditures will inhibit the growth of national income.

The foreign trade multiplier means that under the influence of a country's established marginal propensity to consume, the increase in consumption in this sector due to foreign trade income will increase the income and consumption of related sectors through the industrial chain of the national economy, ultimately affecting the growth of the national economy and national income. Produce a doubling effect. The foreign trade multiplier is the ratio between the change in income and the change in exports that causes this change. The foreign trade multiplier can be obtained from the formula for determining equilibrium income in the four-sector economy, which is: dy/dx=1/1-β γ

In the formula, β represents the marginal propensity to consume, and γ represents the marginal propensity to import. It can be seen that the greater the marginal propensity to consume or the smaller the marginal propensity to import, the greater the foreign trade multiplier. According to the formula for calculating the foreign trade multiplier, it can be seen that with the introduction of foreign trade, not only the changes in exports, but also the impact of changes in investment, government expenditures, and taxes on changes in national income have also changed compared with those in a closed economy. In the closed economy, investment and government expenditure increase, and the multiple of national income increase is 1/(1-β), but now it is 1/(1-β γ), The multiplier becomes smaller mainly because part of the increased income is spent on imported goods.

The traditional view is that thrift is a virtue, but Keynes proposed a contradictory view. According to Keynes's theory of national income determination, national output is determined by aggregate demand including consumption expenditure. That is to say, an increase in consumption expenditure will cause an increase in national output, and a decrease in consumption expenditure will cause a decrease in national output, that is, consumption There is a positive relationship between changes and changes in national output. At the same time, it can be seen from Keynes's consumption theory that consumption and savings have a complementary relationship, so it can be concluded that changes in savings and changes in national output have an inverse relationship. In other words, increasing savings will reduce national output and make the country's economy decline, which is bad for society; while reducing savings will increase national output and make the economy prosper, which is good for society. This contradiction is called the "paradox of thrift."

Keynes' theorem means that no matter how much the demand is, the economic system can provide the corresponding supply at a constant price. That is, when the total social demand changes, it will only cause changes in output and income, making supply and demand equal, but will not cause price changes. In short, demand creates supply.

Say's law mainly states that in a capitalist economic society, there will generally not be any crisis of overproduction, let alone underemployment. The production quantity of commodities is completely determined by the supply side of the commodities. Through the adjustment of the price index, the supply of goods will eventually equal the demand for goods. In short, supply creates demand.

Diminishing marginal propensity to consume

Diminishing marginal efficiency of capital

mobility preference

Insufficient investment demand

Marginal efficiency of capital refers to the discount rate that makes the sum of the present values ​​of expected returns of a capital good during its use period equal to the supply price or replacement cost of the capital good. It can be regarded as the expected profit rate of an investment calculated based on the compound interest method, and its formula is:

In the formula, R represents the supply price or replacement cost of capital goods, Ri represents the expected income in each year during the use period, J represents the disposal residual value of capital goods at the end of the nth year, and r represents the marginal efficiency of capital. The formula shows that the marginal efficiency of capital is inversely proportional to the replacement cost of capital and directly proportional to the expected return of capital. Keynes believed that the reduction in expected returns and the increase in replacement costs will lead to diminishing marginal efficiency of capital.

Tobin's q ratio refers to the ratio of the market value of a company's stock to the replacement cost of capital. The market value of a stock reflects the price expectations of stock holders for the remaining claim on the company's assets. Capital replacement cost is the cost of re-establishing the business under existing product market conditions. Therefore, q=the stock market value of the enterprise/the cost of building a new enterprise.

If q<1, that is, the market value of the enterprise is less than the replacement cost of capital, it means that buying an old enterprise is cheaper than building a new enterprise, so there will be no new investment; If q>1, that is, the market value of the enterprise is greater than the replacement cost of capital, it means that it is cheaper to build a new enterprise than to buy an old enterprise, so there will be new investment. That is, when q is higher, investment demand will be greater. It can be seen that investment is an increasing function of the q value.

Tobin connected financial markets and actual economic activities through q-values ​​and promoted the development of traditional investment theory.

Keynes believed that when interest rates fell to a low enough level, people's demand for currency speculation would be infinite. (That is, it is believed that the bond price is too high at this time and will only fall and will not rise again, so buying bonds is very risky, so people are no longer willing to buy bonds no matter how much money they have on hand), Thus entering a liquidity trap, making the LM curve horizontal.

Liquidity preference, also known as flexibility preference, also known as liquidity preference, refers to the psychological tendency that people would rather sacrifice interest income and store non-interest-bearing currency to maintain wealth due to the flexibility of currency use. This theory was proposed by the famous British economist Keynes in 1936 in "The General Theory of Employment, Interest and Money". Keynes believed that liquidity preference is rooted in the following three motivations for money demand:

Transaction motivation refers to the motivation of individuals and businesses to hold currency for normal trading activities. The amount of currency demand generated by transaction motivation is mainly determined by income. The higher the income, the greater the number of transactions, and thus the greater the amount of currency required to meet daily expenses.

Prudential motivation refers to the motivation to hold a part of currency to prevent unexpected expenditures. For example, an individual or enterprise needs to hold a certain amount of currency in advance to cope with unexpected events such as unemployment, accidents, and illness. From the perspective of the whole society, the money demand generated by prudential motivation is generally proportional to income and is a function of income.

Speculative motivation refers to the motivation of people to hold a portion of currency in order to seize advantageous opportunities to purchase securities. The demand for money generated by speculative motives is inversely proportional to the interest rate.

Liquidity trap, also known as Keynesian trap or flexibility trap, is a concept in Keynesian liquidity preference theory. Specifically, it refers to an economic state in which when the interest rate level is extremely low, people's money demand tends to be infinite, and the monetary authorities cannot lower the interest rate even if they increase the money supply, and thus cannot increase investment.

When interest rates are extremely low, the price of securities will be very high. In order to avoid losses caused by falling securities prices, people would rather hold cash than hold securities. This means that money demand will become perfectly elastic, and people's money demand will tend to be infinite, which is manifested by the right end of the money demand curve becoming a horizontal line. In this case, the increase in money supply will not cause interest rates to fall, and thus investment and effective demand will not increase. When the economy reaches the above state, it is called a liquidity trap.

Although the existence of a liquidity trap can be deduced theoretically, this economic phenomenon has not been found in real economic life. Some economists believe that the Japanese economy in the 1990s experienced a phenomenon similar to a liquidity trap.

Aggregate demand refers to the total demand for products and services by the entire economy and society at each price level. It is composed of consumer demand, investment demand, government demand and foreign demand. The aggregate demand function represents the dependence between the price level and national income when the product market and the money market reach equilibrium at the same time. The curve describing this function is called the aggregate demand curve.

When the price level rises, the actual value of currency and other fixed-value assets held by people decreases. People will become relatively poor and their consumption levels will decrease accordingly. This effect is known as the real balance effect, also known as Pigou's wealth effect. According to the real balance effect, aggregate demand and the price level move inversely, and the corresponding aggregate demand curve slopes downward to the right.

The aggregate supply function with added expectations, also known as the Lucas aggregate supply function, refers to the aggregate supply function that expresses the relationship between output and price changes after adding expected prices. The Lucas aggregate supply curve (function) was first proposed by Lucas, a representative of the rational expectations school. Lucas's aggregate supply curve is derived by examining the behavior of enterprises, the basic unit of microeconomics. The aggregate supply curve for the entire economy is obtained by summing the supply curves of all typical firms. Lucas’ short-run aggregate supply curve is: y=y* λ(P-P^). In the formula, y is the total output, y* is the potential output of the economy, P is the price level, and Pˆ is the public’s price expectations. Parameter λ>0,

The expected aggregate supply function shows that there is a positive relationship between the economy's aggregate output and unanticipated price increases. The main reason why the Lucas short-term aggregate supply curve slopes upward to the right is due to the rational expectations and natural rate hypothesis in its premise. ②When the price level in the market is equal to the expected price level, that is, P=Pˆ, the total supply is equal to the natural rate of output level. When the price level in the market exceeds the expected price level, that is, P>Pˆ, aggregate supply increases above the natural rate of output. When the price level in the market is lower than the expected price level, that is, P<Pˆ, aggregate supply falls below the natural rate of output. (③An increase in the expected price level will shift the Lucas short-term aggregate supply curve to the left (up). A decrease in the expected price level will shift the Lucas short-term aggregate supply curve to the right (down).) (①②③ are the conclusions of the conventional AS curve) In the long run, the aggregate supply curve is y=y*, and the economy is at full employment output.

The classical aggregate supply curve is also called the long-run aggregate supply curve. The classical school assumed that money wages and price levels are elastic and can adjust quickly or immediately, And in the long run, even without adopting the assumption that money wages and price levels can adjust quickly or immediately, they are considered to have sufficient time to adjust. Therefore, the employment level of the economy will be at full employment. When the economy is at full employment, the economy's output level will also be at potential output or the full employment output level, independent of prices. Therefore, the classical school believes that the aggregate supply curve is a vertical line located at the level of the economy's potential output or full employment output.

The Keynesian aggregate supply curve is horizontal, indicating that firms are willing to supply any quantity of goods required at the existing price level. Its meaning or basic idea is: due to the existence of unemployment, manufacturers can obtain the amount of labor they need at the prevailing wage level. Therefore, their average production costs are assumed to be invariant with changes in output levels. Therefore, they are willing to supply any quantity of goods required at the prevailing price level.

Frictional unemployment refers to short-term, localized unemployment caused by unavoidable friction in the production process. Frictional unemployment is the unemployment caused by the normal flow of labor. This unemployment is transitional or short-term in nature and usually originates from the supply side of labor.

In a dynamic economy, changes in labor demand occur frequently across industries, sectors, and regions. Even in a state of full employment, there will always be a turnover of people as people graduate from school or move to new cities and need to find jobs, so the existence of frictional unemployment is normal. The amount of frictional unemployment depends on the extent of labor mobility and the time it takes to find a job.

Structural unemployment refers to the unemployment caused by the mismatch between labor supply and demand. It is characterized by both unemployment and job vacancies. The unemployed either do not have suitable skills or live in the wrong place, so they cannot fill the existing job vacancies. .

Structural unemployment is often considered an extreme form of frictional unemployment, which cannot be solved by expanding aggregate demand. It is generally believed that the more important structural changes that have a serious impact on employment include: changes in consumer tastes, changes in technological levels, changes in government policies, and changes in population growth rates. Changes in consumer tastes, long-term changes in technological levels, and changes in government policies will create some new industries and eliminate some old ones, resulting in unemployment. Changes in the population growth rate can affect both production and labor supply, so they will also affect unemployment.

Cyclic unemployment, also known as unemployment due to insufficient aggregate demand, is short-term unemployment caused by a decline in overall economic expenditure and output levels, that is, insufficient aggregate demand. It generally appears in the depression phase of the economic cycle. This unemployment is consistent with cyclical fluctuations in the economy, with the cyclical unemployment rate falling during booms and rising during recessions. In the recovery and prosperity stages, various manufacturers will expand production and the number of employees needed will increase significantly. However, in the recession and trough stages, various manufacturers will reduce production and lay off a large number of employees. Since cyclical unemployment is caused by insufficient aggregate demand, the solution to this type of unemployment mainly depends on the government's macroeconomic policies. Under normal circumstances, only by adopting a proactive fiscal policy to expand purchases can the government stimulate effective demand and expand employment (Keynesianism), but this may also cause inflation. ,

The natural unemployment rate, also known as "guaranteed unemployment rate", "normal unemployment rate", "full employment unemployment rate", etc., refers to the spontaneous supply and demand forces of the labor market and commodity market when there is no interference from monetary factors. , the unemployment rate when aggregate supply and aggregate demand are in equilibrium. The absence of monetary factor interference means that there is no substitution relationship between the level of unemployment and the level of inflation.

The natural rate of unemployment is the level of unemployment that remains at full employment. Any attempt to reduce unemployment below the natural rate of unemployment will result in accelerated inflation. At any time, there is a natural unemployment rate that is consistent with the actual wage rate structure. The natural unemployment rate is Friedman's view on the development of the Phillips Curve. He called the long-term equilibrium unemployment rate the "natural unemployment rate." The natural unemployment rate can correspond to any level of inflation and is not affected by it. .

The natural unemployment rate depends on many factors such as changes in the labor structure, technological advancement factors, the impact of government policies, the organizational status of the labor market, and differences in the labor market or industry.

Involuntary unemployment, also known as "demand-deficient unemployment," occurs when workers are willing to accept prevailing money wages but still cannot get a job.

Involuntary unemployment is Keynes's important supplement to the traditional unemployment theory, and it is also the direct research object of Keynes's "General Theory of Employment, Interest and Money". Keynes's explanation of involuntary unemployment is that if the price of the goods consumed rises slightly compared to the money wage, and the total supply of labor willing to provide labor at the current money wage is still greater than the actual amount of employment, then there will be involuntary unemployment . Involuntary unemployment, on the other hand, refers to the kind of unemployment that is likely to be eliminated by an increase in aggregate demand. Because an increase in aggregate demand will inevitably lead to higher prices and lower real wages.

Okun's law describes the relationship between real GDP and unemployment. This law is a rule discovered by American economist Okun when he studied the relationship between the above two. Okun used the data on changes in real GDP and unemployment rate in the United States in 55 quarters, and through simple regression Equation estimates a value that reflects the changing relationship between the two. Okun's law states that for every 1 percentage point the unemployment rate is higher than the natural rate, actual GDP will be 2 percentage points lower than potential GDP. Okun's law is expressed as: y-yf/yf=-α(u-u*). Among them, y is the actual output, yf is the potential output, u is the actual unemployment rate, u* is the natural unemployment rate, and α is a parameter greater than zero.

An important consequence of Okun's law is that real GDP must keep growing as fast as potential GDP to prevent unemployment from rising. That is, GDP must keep growing to keep the unemployment rate where it is, and if you want the unemployment rate to fall, real GDP must grow faster than potential GDP.

When the prices of most goods and services in an economy generally rise for a period of time, macroeconomics says that the economy is experiencing inflation. The key to understanding the concept of inflation is that the concept of inflation introduces the time dimension. Changes in the price level occur over a period of time; changes in the price level are continuous within that time period; changes in the price level are significant.

Macroeconomics uses price indexes to describe price levels throughout the economy. The price indexes often involved mainly include GDP conversion index, consumer price index and producer price index. With the concept of price level (price index), inflation can be more accurately described as a sustained and significant increase in the price level of economic society in a certain period.

The extent of inflation is usually measured by the inflation rate.

Deflation is the opposite concept to inflation. It refers to the serious shortage of effective demand, the continued decline of general price levels, the continued decline of money supply and economic recession caused by the reduction of money supply relative to factors such as economic growth and labor productivity growth. and other phenomena.

Deflation is essentially a monetary phenomenon, and its root cause in the real economy is the deviation of aggregate demand from aggregate supply, or the deviation of actual economic growth rate from potential economic growth rate. When aggregate demand continues to be less than aggregate supply, or the actual economic growth rate continues to be lower than the potential economic growth rate, deflation will occur.

Deflation is characterized by a sustained and significant decline in price levels. Strictly speaking, this price level should include asset prices, which are price indexes including stocks, bonds, real estate, and goods and services. However, due to statistical limitations, the national retail price is generally used as the measurement index in China, and the consumer price index is used abroad. If the national retail price increase rate is below zero and lasts for more than 6 months, people usually define it as a classic deflation in theory.

The Consumer Price Index is a price index that represents the cost of buying a basket of goods over time and is used to describe the price level in the economy. This basket of goods typically includes clothing, food, housing, fuel, transportation, school fees, and other goods and services necessary for daily living. The formula for the consumer price index is: CPI = the value of a group of fixed commodities based on current prices/the value of a group of fixed commodities based on base period prices × 100

In addition to the consumer price index (CPI), the GDP deflator is also a commonly used measure of the price level. The difference between the GDP conversion (deflator) index and the consumer price index (CPI) is: ①Different measurement objects: The GDP discount index measures the price of all final goods and services produced; The CPI only measures the price of goods and services purchased by consumers. Therefore, an increase in the price of products purchased by businesses or governments is reflected in the GDP deflator, not in the CPI. ②Different measurement ranges: The GDP conversion index only includes domestically produced items, and the prices of imported products are not reflected in the GDP conversion index; The CPI includes all items purchased by consumers. ③The aggregation methods are different: The GDP discount index determines variable weights, allowing the basket of goods to keep changing as the components of GDP change; The CPI determines fixed weights for the prices of different items and is calculated using a fixed basket of items. The GDP conversion index uses the transaction volume in the reporting period, while the CPI uses the transaction volume in the base period.

In the process of economic operation, in the absence of demand-pull and cost-push, changes in economic structural factors can cause price levels to rise continuously and significantly, triggering inflation. This is structural inflation.

Judging from the characteristics of the economic structure itself, each sector of the national economy has its own characteristics and is vastly different, which is the root cause of structural inflation. In modern society, since capital and technology have different characteristics in different economic sectors, the economic structure of modern society makes it difficult for capital and technology to flow from one sector to another.

However, the growth rate of money wages is usually determined by sectors with higher productivity, sectors in the rising stage of development, and sectors with higher openness. Under the pressure of labor unions to pursue the principles of wage equalization and fairness, and under the influence of labor market competition, The monetary wage growth rate of those sectors with low labor productivity, sectors in the recession stage and non-open sectors will be in line with those sectors with higher productivity, sectors in the rising stage of development and sectors with higher degree of openness, making the entire society The growth rate of money wages has a trend of simultaneous growth. If the growth rate of money wages in the entire society is aligned with those sectors with higher productivity, sectors in the rising stage of development, and sectors with higher openness, it will inevitably lead to the growth rate of money wages in the whole society being higher than the average growth of social labor productivity. Rate, This will inevitably lead to a general increase in price levels, thereby triggering inflation, which is structural inflation.

*

The expected-added Phillips curve, the short-term Phillips curve, is a curve that represents the relationship between the inflation rate and the unemployment rate when people expect the inflation rate to remain unchanged. Its typical feature is the substitution relationship between inflation and unemployment. The equation of the Phillips curve with additional expectations is: where…

It can be seen that when the actual inflation rate is equal to the expected inflation rate, the unemployment rate is at the natural unemployment rate.

Adaptive expectations refer to the way in which agents revise their expectations in each period based on the errors in their previous expectations.

The adaptive expectation of the price level in period t in period t-1 is

“Adaptive expectations” was coined by Philip Kagan in an article discussing hyperinflation in the 1950s. Because it was more suitable for the economic situation at that time, it was quickly applied in macroeconomics. Adaptive expectations can better reflect economic reality in a period when prices are relatively stable, and this was exactly the case for the economies of Western countries in the 1950s and 1960s, so adaptive expectations have become very widely popular.

Adaptive expectations were later criticized by neoclassical macroeconomics, which believed that it lacked a microeconomic foundation. The weight distribution of adaptive expectations is a given geometric series. Other variables related to the measured variable are not used. The determination of the economic expectation equation is basically arbitrary and has no reasonable economic explanation. Therefore, the "rational expectations" of the neoclassical macroeconomics school gradually replaced the "adaptive expectations".

Fiscal policy is a major tool for demand management. Fiscal policy refers to the government's policy of changing taxes and expenditures to affect aggregate demand and thus employment and national income. Variable taxation refers to changes in tax rates and tax rate structures. Changes in government spending refer to changes in government spending on goods and services and transfer payments.

Fiscal policy uses changes in the government budget (including taxes and expenditures) to affect aggregate demand to stabilize the economy. Its characteristic is that the government uses the government budget to directly control the total consumption and investment, adjust the country's demand level, and bring the total demand and total supply to an ideal equilibrium state, thereby promoting full employment and controlling inflation.

From its content, fiscal policy includes fiscal revenue policy and fiscal expenditure policy. The former's policy instrument is mainly tax rate, while the latter's policy instrument is mainly government purchase (expenditure). Judging from the effects on the economy, fiscal policy can be divided into expansionary fiscal policy and contractionary fiscal policy. The former refers to lowering tax rates, increasing transfer payments, and expanding government spending, with the purpose of stimulating aggregate demand and reducing unemployment. The latter includes raising tax rates, reducing transfer payments, and reducing government spending to curb the increase in aggregate demand and thereby curb inflation.

Monetary policy is a major means of demand management. Monetary policy refers to the policy of the monetary authority, that is, the central bank, to adjust aggregate demand through changes in the money supply in the banking system.

Monetary policy is divided into expansionary monetary policy and contractionary monetary policy. Expansionary monetary policy stimulates aggregate demand by increasing the money supply and lowering interest rates. When aggregate demand is very low compared to the economy's production capacity, expansionary monetary policy is most appropriate. Tightening monetary policy is to reduce aggregate demand by tightening the money supply and raising interest rates. When inflation is severe, tightening monetary policy is more appropriate.

The main tools of monetary policy are open market operations, changes in the discount rate, changes in the statutory reserve ratio, and moral suasion.

The fiscal policy multiplier shows how much an increase in government spending will change the equilibrium level of income, holding the real money supply constant.

The monetary policy multiplier indicates how much an increase in the real money supply will change the equilibrium income level, holding fiscal policy unchanged.

Expressed as:

Automatic stabilizers, also known as intrinsic stabilizers, refer to a mechanism that exists in the economic system itself to reduce the impact of various disturbances on national income. It can automatically suppress inflation during economic booms and automatically alleviate depression during economic recessions without the need for the government. Take any action.

In social and economic life, factors that usually function as automatic stabilizers mainly include: automatic changes in government taxes, automatic changes in government transfer payments, agricultural product price maintenance systems, etc. For example, during a depression, when personal income and corporate profits decrease, government income taxes automatically decrease, resulting in a corresponding increase in consumption and investment. At the same time, as the number of unemployed people increases, government unemployment benefits and various welfare expenditures will inevitably increase, which will in turn stimulate personal consumption and investment.

However, automatic stabilizers can only do so much. It can only cooperate with demand management to stabilize the economy, but is not sufficient by itself to fully maintain economic stability; It can only moderate or reduce the extent of economic recession or inflation, but cannot change their general trend. Therefore, stronger fiscal and monetary policy measures must also be adopted.

Full employment budget surplus refers to the surplus generated by a given government budget at the full employment level of national income, that is, the potential level of national income. If this surplus is negative, it is a full-employment budget deficit.

A full-employment budget surplus is different from an actual budget surplus. The actual budget surplus measures the budget situation based on the actual level of national income. The full-employment budget surplus measures the budget situation based on the full-employment national income level. The full-employment budget surplus can be greater than, less than, or equal to the actual budget surplus.

The formulas for real budget surplus and full employment budget surplus are respectively

The proposal of the concept of full employment budget surplus has the following two very important functions: ① Fix the income level at the level of full employment and eliminate the impact of cyclical fluctuations in income levels in the economy on the budget situation, thereby more accurately reflecting the impact of fiscal policy on the budget situation; ② Make policymakers pay attention to the issue of full employment, determine the budget size with full employment as the goal, and thereby determine fiscal policies. However, this concept also has certain flaws, because full-employment national income or potential national income itself is difficult to accurately estimate.

Budget surplus BS = government revenue – government expenditure. Balanced budget has the following two meanings: ①BS=0, that is, the government’s revenue is completely equal to the government’s expenditure, and the government has completely achieved equality between revenue and expenditure. ②△BS=0, that is, the change in government revenue and expenditure is equal to 0.

Before the great crisis of the 1930s, countries generally adopted annual balanced budgets, requiring governments to maintain a balanced budget every fiscal year. The annual balanced budget later evolved into the cyclical balanced budget, which means that the government maintains a balanced budget during an economic cycle. That is, we implement expansionary policies during recessions and intentionally arrange budget deficits; we implement austerity policies during boom times and intentionally arrange budget surpluses. The surplus during the boom is used to offset the deficit during the recession, so that the surplus and deficit can be offset throughout the cycle.

Functional fiscal thinking emphasizes that the government's active fiscal policy is mainly to achieve full employment levels of output and income without inflation. When this goal is achieved, the budget can be in surplus or deficit. Functional fiscal thought is the fiscal thought of Keynesians. They believe that budget deficits and budget surpluses cannot be treated mechanically from the perspective of fiscal budget balance, but should be utilized from the perspective of counter-economic cycle demand. When national income is lower than the income level of full employment, the government is obliged to implement expansionary fiscal policies, increase spending or reduce taxes to achieve full employment. If there is a fiscal surplus initially, the government has the responsibility to reduce the surplus, even if there is a deficit, and should resolutely pursue expansionary policies; and vice versa. In short, the functional fiscal thinking believes that in order to achieve full employment and eliminate inflation, the government should run a deficit if it needs a deficit and a surplus if it needs a surplus. It should not hinder the correct formulation and implementation of fiscal policies in order to achieve a balanced fiscal budget.

The money multiplier, also known as the money creation multiplier or the money expansion multiplier, refers to the central bank's new original money supply that expands the total demand deposits (i.e., the money supply) to a multiple of this original money supply. The formula is:

Among them, rc is the cash-deposit ratio, rd is the statutory reserve rate, and re is the excess reserve rate. Factors that affect the money multiplier include: cash leakage rate, demand deposit statutory reserve rate, and excess reserve rate. The money multiplier can work in two ways: it can both expand bank deposits multiple times and shrink bank deposits multiple times. Therefore, the central bank's control of reserves and adjustment of the reserve ratio will have a significant impact on the money supply.

Base currency refers to the sum of cash held by the public and reserves deposited by commercial banks into the central bank. It is a variable directly controlled by the central bank and is also the basis for the expansion of deposits and money creation in the banking system. Because it derives currency, it is a high-energy or powerful currency, so it is also called high-energy currency or powerful currency.

The rediscount rate refers to the withholding interest rate when commercial banks apply to the central bank for rediscounting their discounted undue bills.

Mechanism

advantage

shortcoming

Refers to the policy behavior of the central bank to adjust the money supply and interest rates by buying or selling securities, absorbing base money, and adjusting the money supply and interest rates.

Mechanism

advantage

shortcoming

Refers to the proportion of commercial bank deposits stipulated by the central bank (reserves required to meet withdrawals). The statutory reserve system refers to a system in which the central bank stipulates that commercial banks must pay part of their deposits to the central bank as reserves.

Mechanism

advantage

shortcoming

It refers to the central bank using its special status and prestige in the financial system to By advising banks and other financial institutions, influencing their lending and investment directions to achieve the purpose of controlling credit.

Discretionary decision-making means that when the government conducts demand management, it flexibly adopts one or several measures based on market conditions and the characteristics of various adjustment measures to match fiscal policy and monetary policy.

Based on the differences between macro-fiscal policy and macro-monetary policy in four aspects: decision-making speed, speed of action, reliability of prediction, and degree of neutrality, discretionary decision-making generally has three matching methods: ①Pair loose fiscal policy with loose monetary policy; ②Pair tight fiscal policy with tight monetary policy; ③Pair loose fiscal policy with tight monetary policy or pair tight fiscal policy with loose monetary policy.

The purpose of implementing discretionary decision-making is to maintain aggregate demand without causing a higher inflation rate.

"Single rule" monetary policy refers to a monetary policy that excludes interest rates, credit flows, free reserves and other factors, and only uses a certain currency stock as the only factor to control the economy.

This is the policy proposition of the monetary school. According to the view of the monetary school, in order to prevent currency from becoming the cause of economic chaos and provide a stable operating environment for the economy, The optimal monetary policy is to control the money supply according to a single rule, and its money growth rate is equal to the economic growth rate plus the inflation rate.

The analytical logic of Friedman’s “single rule” monetary policy is as follows: Money supply must adapt to money demand, so from the perspective of money demand, Money demand is primarily determined by permanent income. Since permanent income is highly stable, the demand for money dominated by permanent income is also stable, and the velocity of money circulation does not change much. In this case, based on a stable money demand function, the money supply should also grow steadily.

formula

equilibrium analysis

In Mead's analysis, the conflict between internal and external equilibrium generally refers to the combination of two specific internal and external economic conditions: increased unemployment, current account deficit, or inflation and current account surplus under a fixed exchange rate system. Using one policy instrument to address two objectives simultaneously creates a dilemma for policymakers.

A floating exchange rate system means that a country does not stipulate the official exchange rate between its own currency and other countries' currencies, and allows the exchange rate to be determined spontaneously by the supply and demand relationship in the foreign exchange market. After the collapse of the Bretton Woods system in 1973, major countries in the world implemented a floating exchange rate system.

Floating exchange rate systems are divided into free floating and managed floating. Among them, the former means that the central bank does not take any intervention measures in the foreign exchange market and allows the exchange rate to be completely determined spontaneously by the supply and demand relationship in the foreign exchange market; The latter refers to countries that implement a floating exchange rate system and carry out various forms of intervention activities in the foreign exchange market. It mainly sells or purchases foreign exchange according to the supply and demand of the foreign exchange market, and affects the exchange rate through its impact on the supply and demand of foreign exchange.

The gold standard is a currency system that uses gold of a certain quality and weight as the standard currency. It includes three forms: gold coin standard, gold nugget standard and gold exchange standard, among which gold coin standard is the typical form of gold standard. The international gold standard system has three distinctive characteristics: ① Use gold as the final means of settlement and as an international currency. ②The exchange rate system is a strict fixed exchange rate system. ③It is a loose and unorganized system.

advantage: ① Since the exchange rate is fixed, the uncertainty caused by exchange rate fluctuations is eliminated and helps promote world trade; ② Due to the inherent symmetry of the gold standard, no country in the system has a privileged status and must assume the obligation to intervene in foreign exchange; ③Central banks around the world must fix the gold price of their currencies, so they will not allow their money supply to grow faster than actual money demand. Therefore, the gold standard can naturally limit the central bank's ability to cause domestic price increases through expansionary monetary policies.

shortcoming: ① It greatly limits the ability to use monetary policy to deal with unemployment and other problems; (Unstable) ② Only when the relative price of gold and other products and services is stable, the practice of linking currency to gold can ensure the stability of the overall price level; (New gold) ③ When the economies of various countries grow, unless new gold can be continuously discovered, the central bank cannot increase the international reserves it holds; (New Gold) ④The gold standard gives major gold-producing countries the huge ability to influence world economic conditions through the sale of gold.

The international monetary system established under the Bretton Woods Agreement required each country's currencies to maintain a fixed exchange rate against the U.S. dollar, and fixed the price of the U.S. dollar to gold at $35 per ounce of gold. Member countries hold their official international reserves in the form of gold or dollar assets and have the right to exchange gold at official prices with the central bank of the United States, the Federal Reserve Bank.

The balance of payments is a statistical report that systematically records various balance of payments items and their amounts within a certain period of time. This table is prepared according to the principles of double-entry bookkeeping. Shows the comparison of external expenditures expressed in currency terms with income received from abroad over the past period.

The balance of payments includes three parts: ①Current items, including goods and services items ②Capital projects, including short-term capital projects and long-term capital projects ③Balance items, including official reserve assets, errors and omissions.

The balance of payments statement provides the necessary conditions for studying the balance of payments and is an important economic analysis tool. The balance of payments can help understand a country's economic and financial development and its development trends, and therefore has a positive effect on the country that compiles the balance of payments and other countries.

Purchasing power parity is the equivalence coefficient between currencies calculated based on different price levels (Pd, Pf) in various countries. (There is also relative purchasing power parity, so it is just the equivalent coefficient) It believes that if the currency (no matter which country) has equal purchasing power in each country (1/Pd, 1/Pf), then the exchange rate at this time is the equilibrium exchange rate.

The theoretical basis of purchasing power parity theory is the law of one price, that is, the purchasing power of the same commodity in two countries should be the same, otherwise arbitrage will occur. According to the purchasing power parity theory, when the price level of a country increases, the country's currency will depreciate, and vice versa. In other words, the currencies of countries with high inflation rates will depreciate, and the currencies of countries with low inflation rates will appreciate.

Historically, Many empirical research results when the floating exchange rate system was implemented in the 1920s showed that the purchasing power parity theory worked well; However, the verification results after the 1970s were unfavorable to the purchasing power parity theory. In fact, the purchasing power parity theory is invalid in the short term, but in the long term, purchasing power parity is more appropriate.

The exchange rate is divided into nominal exchange rate and real exchange rate. The nominal exchange rate is the exchange ratio between two currencies. It refers to the amount of domestic currency that can be exchanged for 1 unit of foreign currency, or the amount of foreign currency that can be exchanged for 1 unit of domestic currency. The real exchange rate is the relative price of goods between two countries. It is the ratio of domestic and foreign prices measured in the same currency. It can reflect the competitiveness of a country's goods in the international market.

The expression for the actual exchange rate is:

It can be seen that if purchasing power parity holds, the real exchange rate should be equal to 1, that is, the local currency price of a domestic basket of goods should be equal to the local currency price of a foreign basket of goods. If the former is smaller than the latter, it means that domestic products are relatively cheap and have strong competitiveness in the international market, which is conducive to increasing the country's net exports; otherwise, domestic products are relatively expensive.

The Impossible Triangle, also known as the Trilemma or the Trilemma, was proposed by American economist Paul Krugman on the basis of the Mundell Fleming model on policy choices in an open economy. The meaning is: the independence of the country's monetary policy, the stability of the exchange rate, and the complete mobility of capital cannot be achieved at the same time. At most, it can only meet two goals at the same time and give up the other goal. Among them, the independence of a country's monetary policy refers to a country's ability to implement macro-stabilization policies and make countercyclical adjustments. Here it mainly refers to the ability to use monetary policy to affect its output and demand; Exchange rate stability refers to protecting the country's exchange rate from the impact of speculation, currency crises, etc.; Full liquidity of capital means that there are no restrictions on the free flow of short-term capital.

The Marshall-Lerner condition was revealed by economists Marshall and Lerner about the relationship between a country's |currency depreciation| and the country's |trade balance|improvement degree|. If a country is in a trade deficit, that is, X<M, it will cause the currency to depreciate. The depreciation of the local currency will improve the trade deficit, but the specific condition required is that the sum of the demand elasticity of export goods and the demand elasticity of imported goods is greater than 1.

Look at the exit first. If the demand elasticity of export commodities in the world market is very small, the increase in exports caused by the depreciation of the domestic currency (thus reducing the price of export commodities) will be smaller than the depreciation of the domestic currency, which will only reduce foreign exchange earnings. (The local currency depreciates and sells cheaper, but the demand remains unchanged) Let’s look at imports. If the demand elasticity of imported goods in the domestic market is very small and the reduction in imports caused by the depreciation of the domestic currency (thus increasing the price of imported goods) is very small, then foreign exchange expenditures will not decrease but will instead increase. (The local currency depreciates and purchases become more expensive, but demand remains unchanged) Therefore, whether the depreciation of the domestic currency can improve a country's trade balance depends on the demand elasticity of export goods and the demand elasticity of imported goods. If the absolute value of the sum of the two is greater than 1, then the depreciation of the domestic currency can improve a country's trade balance.

When a country's currency depreciates, it will initially worsen the trade balance rather than improve it. Only after a period of time will the deterioration of the trade balance be controlled and tend to improve, eventually improving the trade balance. This process is described by a curve, which is similar to the English letter "J", so the time-lag effect of currency depreciation on the improvement of trade balance is called the J-curve effect.

absolute advantage theory (Absolute difference in technical differences)

comparative advantage theory (relative difference in technical differences) (Relative differences bring opportunity costs)

Heckscher-Ohlin theorem (H-O theory) (difference in proportion)

economies of scale theory

Expansion of money Expansion of finance

In macroeconomics, economic growth is usually defined as an increase in output. Specifically understood, economic growth has the following two meanings: ①Economic growth refers to the continuous increase in the material products and services produced by an economy over a long period of time, that is, the continuous increase in real total output; ②Economic growth refers to the sustained increase in real output calculated per population (real output per capita).

The level of economic growth reflects the growth rate of a country or a region's output in a certain period of time, and is also a measure of the growth rate of a country's overall economic strength. The growth rate of total output per capita reflects the level of economic efficiency.

Total factor productivity, also known as Solow surplus and Solow residual, refers to the economic growth rate that cannot be explained by changes in input factors. Specifically, Solow surplus refers to the remainder after stripping away the contributions of capital and labor to economic growth. It is generally believed that the remaining part is the contribution of technological progress to economic growth. (more than technology)

The Solow residual formula can be expressed as:

In the formula, ΔY/Y is the growth rate of total output, ΔN/N is the growth rate of labor, ΔK/K is the growth rate of capital, α and β represent the labor share and capital share respectively, and ΔA/A is the Solow margin. . Therefore, according to the formula, if the shares of labor and capital in output are known and data on the growth of output, labor, and capital are available, technological progress in the economy can be calculated as a margin.

The basic equation of the neoclassical growth model is:

In the formula, sf(k) is per capita savings; (n δ)k is the amount of capital equipped with the new labor force and capital depreciation, which is called capital generalization; Δk is the increment of per capita capital, which is called capital deepening. Therefore, the basic equation of the neoclassical growth model can be expressed as: capital deepening = per capita savings - capital broadening.

When Δk=0, that is, sf(k)=(n δ)k, per capita savings are exactly equal to the need for capital generalization, and balanced economic growth can be achieved. Therefore, to achieve steady state (balanced economic growth), per capita savings must be exactly equal to capital generalization, that is, the steady state condition in neoclassical growth theory is: sf(k)=(n δ)k

Endogenous growth theory is a type of economic growth theory. Different from neoclassical growth theory, it uses endogenous technological progress to explain the difference between a country's long-term economic growth and the economic growth rates of various countries. Endogenous growth theory believes that long-term economic growth depends on the savings rate and other factors, not just on the labor growth rate. Its important feature is to try to endogenize the growth rate. According to the basic assumptions of endogenous growth theory: ①There are two sectors in the economy: manufacturing companies and research universities. ② Manufacturing enterprises produce goods and services for consumption and capital investment. ③Research universities | Produce knowledge elements that can be used for free. We can divide the endogenous growth model into the endogenous growth model under perfect competition conditions and the endogenous growth model under monopolistic competition conditions.

According to the endogenous growth model under conditions of perfect competition, the two basic ways to endogenize the stable growth rate are: ① Endogenize the rate of technological progress; ② If the production factors that can be accumulated have fixed returns, then the steady-state growth rate can be affected by the accumulation of production factors in some way. (The accumulation of knowledge)

Economic fluctuations are the ups and downs of |economic variables|over |time |around |long-term trends|. The long-term trend refers to a steady growth or decline that |an economic variable|shows over |time|. It describes the continued stability in an economy over a certain period of time.

Economic fluctuations are usually divided into cyclical fluctuations, seasonal fluctuations and random fluctuations. Cyclical fluctuations are economic cycles. Seasonal fluctuations are special changes in economic variables caused by seasonal changes, which have certain regularity. Random fluctuations usually refer to random disturbances |in the short term| caused by |external factors or random events|.

The multiplier-accelerator model, also known as the "Hansen-Samuelson model", is a representative model of the internal causal theory of the business cycle. The multiplier principle explains that an increase or decrease in investment will lead to a multiple increase or decrease in national income, while the accelerator principle explains that an increase or decrease in national income will accelerate the increase or decrease in investment. The multiplier-accelerator model combines the two to explain the mutual influence and acceleration of income, consumption and investment in national income, and then explains the alternation of expansion and recession in the economy and the formation of a business cycle.

The basic equation of the multiplier-accelerator model proposed by Samuelson is as follows:

The multiplier-accelerator model proposed by Samuelson can be used to explain cyclical fluctuations in the economy. The analysis is as follows: (Keywords: economic resources, accelerator effect, multiplier effect)

(Policy proposition) As long as the government intervenes in the economy, it can change or moderate economic fluctuations. For example, economic depression can be overcome or mitigated by adopting appropriate policies to stimulate investment, encourage labor productivity to increase acceleration, and encourage consumption.

Real business cycle theory, referred to as RBC theory, is a representative theory of neoclassical macroeconomics and a new business cycle theory proposed by neoclassical macroeconomists in the 1980s.

Real business cycle theory believes that the assumption of the classical model should be maintained, that is, prices are fully elastic. The real business cycle theory believes that actual economic shocks are the main cause of economic cyclical fluctuations. Actual economic shocks refer to disturbances to the actual aspects of the economy, such as shocks that affect the production function, the size of the labor force, the actual quantity of government purchases, etc. At the same time, it also believes that there are many actual factors that cause economic fluctuations, among which technology is the most important factor.

Assumptions of Real Business Cycle Theory

A real business cycle theory perspective

Keynesian business cycle theory is a theory that discusses business cycles from the perspective of psychological factors. It was proposed in 1936 by the famous modern British economist John Maynard Keynes in the book "The General Theory of Employment, Interest and Money". He believes that economic development will inevitably see a cyclical movement that begins upward, continues downward, and then upward again. And it has obvious regularity, that is, the economic cycle. Among the four stages of prosperity, panic, depression, and recovery, "prosperity" and "panic" are the two most important stages in the economic cycle. In the later stage of the boom, as capitalists have optimistic expectations about future profits, production costs gradually increase or interest rates rise, and investment increases. But in fact, two situations have occurred at this time: First, labor and resources are becoming increasingly scarce and prices are rising, causing the production cost of capital goods to continue to increase; Another situation is that as production costs increase, the marginal efficiency of capital decreases and profits gradually decrease. However, because capitalists are too optimistic and still invest heavily, speculators cannot make reasonable estimates of the future returns of capital. They are overly optimistic and purchase too much, causing the marginal efficiency of capital to suddenly collapse. Immediately, capitalists lost confidence in the future, causing people's flexibility preferences to increase significantly and interest rates to rise. As a result, investment dropped significantly, and the economic crisis came. After the economic crisis, the economic depression phase followed. At this stage, capitalists lacked confidence in the future, the marginal efficiency of capital was difficult to restore, and bankers and the business community were unable to control the market. As a result, investment was sluggish, production shrank, employment was insufficient, commodity inventories were overstocked, and the economy In a downturn. As the marginal efficiency of capital gradually recovers, inventories are gradually absorbed, interest rates decrease, investment gradually increases, and economic development enters the recovery stage. At this stage, the marginal efficiency of capital is fully restored, investment increases significantly, and the economy enters a prosperous stage again. The main reason for the formation of cyclical fluctuations is the cyclical changes in the marginal efficiency of capital, which generally show a 3-5 year periodicity.

Dusenberry proposed that consumption does not depend on the current absolute income level, but on the relative income level, that is, relative to the income level of other people and relative to the highest income level in one's history. Based on the relative income hypothesis, Dusenberry believes that:

(Assuming income drops) First, consumption is habitual. Consumption in a certain period is not only affected by the current income, but also by the highest income and highest consumption achieved in the past. Consumption is irreversible, that is, the "ratchet effect."

(Assuming income drops) Second, people's consumption will affect each other and have a tendency to compare, that is, the "demonstration effect." People's consumption does not depend on their own absolute income level, but on the relative income level compared with others.

The ratchet effect was proposed by American economist Dusen Bailey in "Consumption Behavior Theory of Income and Savings". Dusenberry believes that consumption is irreversible, and consumers tend to increase consumption as income increases, but are less likely to decrease consumption as income decreases, resulting in a short-term consumption function with a positive intercept. This characteristic is called the "ratchet effect", that is, it is easier to get up than to get down.

Keynes advocated that consumption is reversible, that is, changes in absolute income levels will inevitably cause changes in consumption levels. In response to this view, Dusenberry believes that this is actually impossible, because consumption decisions are not an ideal plan, but also depend on consumption habits. This consumption habit is influenced by many factors, such as physiological and social needs, personal experience, and the consequences of personal experience. In particular, the consumption standard reached by an individual during the period of highest income plays an important role in the formation of consumption habits.

Life cycle theory is a consumption theory proposed by American economist Modigliani and others. He pointed out that at each stage of life, personal consumption accounts for a fixed proportion of the present value of his or her lifetime income. Consumption does not depend on current income, but on lifetime income. The consumption function of the life cycle hypothesis can be expressed as: C=αWR βYL Among them, C represents consumption, YL represents income, WR represents wealth, parameter α is the marginal propensity to consume of wealth, and parameter β is the marginal propensity to consume of income.

Life cycle consumption theory believes that rational people will arrange their lifetime consumption according to their lifetime wealth and income, and ensure that annual consumption is maintained at a certain level. The consumption pattern of people's life is: when they are young, they exchange their future income for loans; when they are middle-aged, they either pay off early debts or save for old age; when they are old, they consume their life savings every day. Generally speaking, middle-aged people have higher levels of income, and young people and the elderly have lower levels of income. Therefore, middle-aged people have a lower average propensity to consume, while young people and the elderly have a higher average propensity to consume. But throughout a lifetime, an individual has a relatively stable long-term average consumption propensity. This well explains the different forms of the consumption function in the long and short term.

The permanent income hypothesis was proposed by American economist Friedman. He believes that a consumer's consumption expenditure is not mainly determined by his current income, but by his permanent income. Permanent income refers to the long-term income that consumers can expect. It can be roughly calculated based on the weighted average of the observed income in several years. The closer the time is to the present, the greater the weight; conversely, the smaller the weight. Expressed as:

Among them, Yp is permanent income, Yt is current income, Yt-1 is past income, and θ is the weight. Consumer consumption expenditure depends on permanent income. Assuming C=cYp, the marginal propensity to consume of current income is cθ, the long-term marginal propensity to consume is c, and the long-term marginal propensity to consume is greater than the short-term marginal propensity to consume. (not average consumption tendency) The reason for this is that when income rises, people are not sure whether the increase in income will continue forever, so they will not increase consumption immediately; when income falls, people are not sure whether the decline in income will continue forever, so There will be no immediate reduction in consumption; According to this theory, it can be concluded that temporary income changes have no substantial impact on consumption, and only permanent income changes have a substantial impact on consumption. Similarly, temporary tax changes have no substantial impact on consumption, and only permanent tax policy adjustments have a substantial impact on consumption.

The absolute income hypothesis is a consumption theory proposed by British economist Keynes. The absolute income hypothesis holds that consumption is only related to the absolute income of the current period. As income levels increase, consumption increases, but the increase in consumption is not as much as the increase in income. The consumption function can be assumed to be a linear function of income, that is, C=α βy, Among them, α>0 is spontaneous consumption, 0<β<1 is marginal propensity to consume, and C and y are current consumption and income respectively.

The permanent income hypothesis was proposed by American economist Friedman. He believes that a consumer's consumption expenditure is not mainly determined by his current income, but by his permanent income. Permanent income refers to the long-term income that consumers can expect. It can be roughly calculated based on the weighted average of the observed income in several years. The closer the time is to the present, the greater the weight; conversely, the smaller the weight. Expressed as:

Among them, Yp is permanent income, Yt is current income, Yt-1 is past income, and θ is the weight. Consumer consumption expenditure depends on permanent income. Assuming C=cYp, the marginal propensity to consume of current income is cθ, the long-term marginal propensity to consume is c, and the long-term marginal propensity to consume is greater than the short-term marginal propensity to consume. (not average consumption tendency) The reason for this is that when income rises, people are not sure whether the increase in income will continue forever, so they will not increase consumption immediately; when income falls, people are not sure whether the decline in income will continue forever, so There will be no immediate reduction in consumption; According to this theory, it can be concluded that temporary income changes have no substantial impact on consumption, and only permanent income changes have a substantial impact on consumption. Similarly, temporary tax changes have no substantial impact on consumption, and only permanent tax policy adjustments have a substantial impact on consumption.

Random walk means that when the changes in a variable that affects consumption are unpredictable, the changes in consumption over time are also unpredictable. It was proposed by economist Robert Hall. According to Hall, the combination of the permanent income hypothesis and rational expectations implies that consumption follows a random walk. Hall's reasoning is as follows: According to the permanent income hypothesis, consumers face fluctuating income and will do their best to keep their consumption stable over time. At any point in time, consumers will make consumption choices based on their current expectations of their lifetime income. Over time, they change their consumption because they receive news that causes them to revise their expectations. If consumers make optimal use of all available information, they should be surprised only by events that are completely unanticipated. Therefore, changes in their consumption should also be unpredictable.

Explain life cycle consumption theory

① Different from the Keynesian consumption function (consumption only depends on current income), the life cycle consumption function points out that consumption depends on initial wealth and lifetime income. (Actually, I am talking about the short term, and only in the short term will you have initial wealth)

②The average consumption propensity of Keynesian consumption function is APC=C0/Y c, and the average consumption propensity of life cycle consumption function is APC=a(WR/YL) c. It can be seen that in the short term, the initial wealth WR remains unchanged, and the life cycle consumption function is the same as the Keynesian consumption function; (the short-term WR remains unchanged, if YL increases, APC decreases) In the long run, wealth and income increase in proportion, and the average propensity to consume remains unchanged. (In the long term, WR can also change, and it changes in the same proportion as YL) (This is from the perspective that the long term is composed of countless short term, so the short term formula is used) (The above long-term and short-term formulas are applicable to calculation questions. Short-term formulas are used directly for short-answer questions without derivation. Just say that it can be deduced from...)

Consumers are forward expectation decision makers. Consumption is not only related to current income, but also uses lifetime or permanent income as the basis for consumption decisions.

The change in consumption expenditure caused by a one-time temporary income change is very small, that is, the marginal propensity to consume is very low, or even close to zero, but the consumption propensity from permanent income changes is very large, even close to 1.

When the government wants to use tax policies to affect consumption, if tax cuts or increases are only temporary, consumers will not be greatly affected. Only permanent tax changes will the policy have obvious effects.

lender

From the perspective of the substitution effect, rising interest rates (opportunity cost, the cost of current consumption has become greater) means that the price of current consumption relative to future consumption has increased, and consumers will replace relatively "expensive" future consumption with relatively "cheap" future consumption. ”’s current consumption, so the substitution effect is that consumption in the first period decreases and consumption in the second period increases. (E0→E)

(Lender) From the income effect point of view, the increase in interest rates increases the real income of consumers. If consumers consume a normal commodity, the increase in real income means that the overall consumption level of consumers has increased, so the income effect plays a role. Yes, consumption in the first period and consumption in the second period increase at the same time. (E→E1)

(Borrower) From the income effect point of view, rising interest rates reduce consumers’ real income. If consumers consume a normal commodity, an increase in real income means a reduction in the overall consumption level of consumers, so the income effect plays a role. Yes, consumption in the first period and consumption in the second period decrease at the same time. (E→E1)

What is usually studied is c1: borrowers will definitely reduce current consumption, but lenders will not necessarily (c2 is just the opposite)

According to analysis, the consumption rate and thus the savings rate may in principle be affected by interest rates. However, the evidence is mostly that interest rates have only a small impact on savings.

The main content of the quantity theory of money: When other conditions remain unchanged, the price level and the value of money are determined by the quantity of money in a country. As the quantity of money increases, prices rise proportionally, and the value of money decreases inversely. The opposite is true.

The traditional quantity theory of money includes the Fisher equation (i.e., the transaction equation: Py = MV) and the Cambridge equation (i.e., Pigou's M=kPy). The essence of the two is consistent. That is to say, there is a direct causal quantitative relationship between the quantity of money and the price level. The level of the price level depends on the quantity of money and has a positive relationship. The difference between the two is that: the transaction equation emphasizes the role of currency as a medium of exchange, while the Cambridge equation emphasizes the function of currency as a storage means.

Friedman deduced the new quantity theory of money and proposed that the money demand function is:

M is the nominal amount of money; P is the general price level; y is permanent income; w is the ratio between non-human wealth and human wealth; rm is the expected rate of return of money; rb is the expected rate of return of bonds; re is the rate of return of stocks. Expected rate of return; rp is the expected rate of change of price; u is other variables that affect money demand.

Friedman emphasized that the difference between the new quantity theory of money and the traditional quantity theory of money is that The traditional quantity theory of money regards the velocity of money circulation V (or 1/k) as a constant. The new quantity theory of money believes that what is stable is not V (or 1/k), but the function that determines the value of V (or 1/k). V (or 1/k) is just an external manifestation of stability. V (or 1/k) is a constant quantity in the long run and can make slight changes in the short run.

The natural rate hypothesis is a theory proposed by Lucas based on the "natural unemployment rate" that economic variables such as employment, output, and prices have a natural level determined by actual factors controlled by government policies. View.

According to the natural rate hypothesis, there is a natural unemployment rate in any society, the size of which depends on the amount of resources, technological level and cultural traditions of the society. Although in the short run, economic policy can make the actual unemployment rate different from the natural rate of unemployment; in the long run, the economy always tends to the natural rate of unemployment. When discussing the Phillips Curve, the natural rate hypothesis mainly refers to the natural unemployment rate, which is the proportion of voluntarily unemployed people in the total number of laborers.

The natural rate hypothesis is an important theoretical foundation of monetaristism and an important basic assumption of neoclassicism. The existence of the "natural rate" makes monetary policy effective only against unexpected inflation. The "natural rate hypothesis" theoretically discusses the limited role of policies and provides an important theoretical premise for the theory of rational expectations. Its practical significance is that there will be no involuntary unemployment in an economic society in the long run.

Rational expectations refer to the most accurate expectations on the long-term average for economic variables that are consistent with the economic theories and models used under the premise of effectively utilizing all information. Rational expectations were first proposed by John Muth in his article "Reasonable Expectations and the Theory of Price Changes". In fact, rational expectations include the following three meanings:

①The economic subjects who make economic decisions are rational. In order to pursue their best interests, they always strive to make correct expectations for the future.

②In order to make correct expectations, economic entities will try to obtain all relevant information when making expectations, including a systematic understanding of the causal relationship between economic variables.

③Economic agents will not make systematic mistakes when anticipating.

In short, rational expectations mean that in the long run, people will accurately or tend to expect the values ​​that economic variables should have.

Rational expectations are one of the important assumptions of the neoclassical macroeconomics school (the other three are individual interest maximization, market clearing and the natural rate hypothesis), and are an important weapon for the neoclassical macroeconomics school to attack Keynesianism.

New Keynesianism emerged in the 1980s. The common characteristics of new Keynesian economists are: inheriting the tradition of Keynesianism and taking unemployment as a research theme; Different from Keynesianism, they try to find the reasons why the labor market, commodity market and capital market cannot clear from the micro level, that is, from the stickiness of wages, prices and interest rates. Generally speaking, New Keynesians accept the following four propositions:

The private economy is inherently unstable, and the automatic adjustment process of the economy from imbalance to equilibrium is slow; (Slow adjustment)

Money is neutral in the long run; (can eventually adjust back)

The short-term Phillips curve exists; (short-term policies are useful)

Government intervention policies to stabilize the economy are effective.

Menu costs refer to the costs incurred by imperfectly competitive manufacturers each time they adjust prices. These costs include the costs of researching and determining new prices, reprinting price lists, notifying sales outlets of the new price lists, replacing price labels, etc. , is the actual cost incurred by manufacturers when adjusting prices. Because changes in product prices are like changes in a restaurant's menu price list, New Keynesians refer to these costs as menu costs. Another type of cost is the opportunity cost of manufacturers adjusting prices. Although it is not the actual cost of manufacturers, it also hinders manufacturers from adjusting prices. It is also called menu cost.

The menu cost theory believes that imperfectly competitive manufacturers in the economy are price setters and can choose prices, but the existence of menu costs prevents manufacturers from adjusting product prices, so prices are sticky. The existence of menu costs is an important reason for New Keynesians to counter the neoclassical criticism and prove the price stickiness they advocate.

Economists disagree on whether menu costs can cause short-term price stickiness. Some economists argue that menu costs are often too small to have a huge impact on the economy; Another group of economists believe that although the menu cost is very small, the existence of aggregate demand externalities will lead to sticky nominal prices, which will have a huge impact on the entire economy and even cause cyclical fluctuations in the economy.

Price stickiness refers to a phenomenon in which commodity prices are less likely to change in a market economy. Price stickiness is divided into nominal price stickiness and actual price stickiness: Nominal price stickiness means that nominal prices are not easily changed in response to changes in nominal demand. Actual price stickiness refers to the relative stickiness of relative prices among various products.

Explanations for nominal price stickiness mainly include the following:

It emerged in the United States from the late 1950s to the 1960s.

Main point 7

Monetarist policy propositions (Gao Hongye)

*Differences in economic policies between monetaristism and Keynesianism (Friedman and the Neoclassical Synthesis)

In the 1970s, the rational expectations school continued to develop, and together with the monetarism and supply schools formed neoclassical macroeconomics.

Basic assumptions

"The lending market determines the interest rate" is the view of the classical school, which believes that the (real) interest rate is determined by both savings and investment. Savings are the supply of funds, and investment is the demand for funds (both are real economies, so they are real interest rates, and long-term real interest rates remain unchanged) (Long-term interest rate decisions) (Interest rates are only related to the product market)

Money demand, also known as "liquidity preference", refers to the psychological tendency of people to sacrifice interest income and store non-interest-bearing currency to maintain wealth due to the flexibility of currency use. (Keynes believed that the only assets were currency and bonds)

Lucas Critique