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Understanding Economic Dynamics: Consumption, Government Subsidies, and Utility Maximization

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adele
17 diapositives · 321 Views · Aug 04, 2014

This document explores the interplay between consumption, government spending, and economic growth. It highlights key economic concepts such as GDP components (Consumption, Investment, Government spending) and the impact of consumer debt on discretionary income and consumption patterns. The discussion includes insights on sports stadium funding through public and private resources, with examples like Turner Field. Additionally, it explains supply-side economics, tax cuts, and the principles of maximizing utility, including total and marginal utility. The analysis reflects the broader impacts of economic policies on consumer behavior.

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  1. February 12, 2014 Economics & Finance

  2. GDP=C + I + G

  3. Consumption Consumer debt • Used to fund consumption Disposable income • (total income) – (taxes) • Consumption + savings Discretionary income • (total income) – (taxes) – (essentials) • This is where the money to attend sporting events comes from

  4. The G • Government spending • Professional sport is the most subsidized industry in America • Subsidy • Transfer payments to assist industries that benefit the public

  5. They are gonna tear down the Dome?Are you serious??!!?? • 44,000 seat arena w/ retractable roof • Located off campus • $495 million built with public & private funds • Syracuse University would be a tenant • Syracuse is a private university

  6. Turner Field/Olympic Stadium Going, Going, Gone

  7. Mayor Ivan Allen commandeered land from the Rawson Street urban renewal project to construct his baseball stadium.  This land, which was originally designated for residential use, became the site of the Atlanta–Fulton County Stadium, the original home of the Atlanta Braves.  Commenting on the stadium years after it was built, Allen stated, “We built a stadium on ground we didn’t own with money we didn’t have for a team we hadn’t signed.” 

  8. Turner Field • Built for 1996 Olympic Games as 85,000 seat stadium • $170 million of $209 million was private financing • Currently owned by Fulton County Recreation Authority and leased to the Braves for $1 million per year • Lease expires in 2016 • Current seating capacity approx. 49,600

  9. In 2017 • Braves move to a new 42,000 seat stadium • $672 million dollars (financed in part via G) • 10 miles from downtown Atlanta

  10. Supply Side Economics • Tax cuts provide economic growth • Stimulates investment • Business sector invests tax savings in capital equipment • Economy grows • Tax receipts rise (grocery store mentality) • Places too much faith in the ability of tax cuts to increase investment • If consumers are not buying an increase in investment by businesses is not going to get them to start • Boosted consumption by the employed

  11. Maximizing Utility • Preferences • A household’s preferences determine the benefits or satisfaction a person receives consuming a good or service. • The benefit or satisfaction from consuming a good or service is called utility. • Total Utility • Total utility is the total benefit a person gets from the consumption of goods. Generally, more consumption gives more utility.

  12. Maximizing Utility • Marginal Utility • Marginal utility is the change in total utility that results from a one-unit increase in the quantity of a good consumed. • As the quantity consumed of a good increases, the marginal utility from consuming it decreases. • We call this decrease in marginal utility as the quantity of the good consumed increases the principle of diminishing marginal utility.

  13. Maximizing Utility • Figure 8.1(a) shows a total utility curve for soda. • Total utility increases with the consumption of a soda increases.

  14. Maximizing Utility • Figure 8.1(b) illustrates diminishing marginal utility. • As the quantity of soda increases, the marginal utility from soda diminishes.