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Income-Expenditure Identity
Y = C + G
PPF (no distortion)
C = zF(K, Nd) - G
Competitive Equilibrium (no distortion)
𝑀𝑅Sl,C = 𝑀𝑅𝑇l,C = 𝑀𝑃N = w
Pareto Optimum (no distortion)
𝑀𝑅Sl,C = 𝑀𝑅𝑇l,C = 𝑀𝑃N = w
PPF (distortion)
C = z(h – l) - G
Conusmer's Budget Constraint (distortion)
C = z(1 - t)(h - l)
Profit Formula (distortion)
Π = (z - w)Nd
Labour Demand Curve Distortion Assumption
w = z
Competitive Equilibrium (distortion)
𝑀𝑅Sl,C = -w
Pareto Optimum (distortion)
𝑀𝑅Sl,C = 𝑀𝑅𝑇l,C
Government Revenue
REV = tz[h – l(t)]
Tax Rate Formula
t = G/Y