ECO314H1 Lecture Notes - Lecture 3: Consumer Choice, Convex Set, Monopolistic Competition
Document Summary
Separation of optimal pricing from distributional effects: policies that subsidize prices to everyone, should energy agencies be responsible for remedying energy poverty. Optimal extraction of a resource hotelli(cid:374)g"s rule. Regulation competition policy monopoly externalities public goods regulatory failure. Substitution of capital for energy home insulation high efficiency furnaces fuel effi(cid:272)ie(cid:374)t (cid:272)a(cid:396)s. Capital e(cid:374)e(cid:396)g(cid:455) su(cid:271)stitutio(cid:374) also takes a lo(cid:374)g ti(cid:373)e (cid:894)(cid:271)e(cid:272)ause of longlived capital that represents sunk costs) afte(cid:396) the oil p(cid:396)i(cid:272)e sho(cid:272)k of the (cid:1005)97(cid:1004)"s, g(cid:396)adual shift to (cid:373)o(cid:396)e effi(cid:272)ie(cid:374)t (cid:272)a(cid:396)s. Unexpected price shocks can be costly because they change relative prices which may reduce the value of investments. Consumer theory conventio(cid:374)al (cid:272)o(cid:374)su(cid:373)e(cid:396) theo(cid:396)(cid:455) (cid:373)a(cid:454)i(cid:373)ize utility subject to budget constraint yields. Income elasticity of demand change in demand when income changes demand for various forms of energy increases significantly when income increases rich countries consume much more energy than poor countries wealthier people consume more energy than poorer people.
