Public Finance Instructor: John HartmanBefore we begin…Slide 3Structure of learningTextbook for this classOffice hours and review sessionsTestsLecture slidesGradingSlide 10More on this classProblemsTodayAn introduction to Econ 130Unit 1 (begins today)Unit 2Unit 3Unit 4Microeconomics reviewSupply, demand, and equilibriumSupply and DemandEquilibrium: Q = 4, P = 6Example of excess demandFactors of demandFactors of supplyShift in demand; movement along supply curveUtilityBananas and utilityTwo goods and utilityBudget constraintsBudget constraints with no moneyBudget constraints with no tradeSubstitution and income effectsSlide 34Consumer surplusProducer surplusSummary: Microeconomics reviewIntroduction to public financePublic financeSlide 40Public finance and taxesPublic _____What views do people have?Organic view of governmentMechanistic view of governmentWhat this class doesDetermining what is “good”Statements 1-3Statements 4-6Statements 7-9Does everyone agree?Summary: Introduction to Public FinanceSome ground rules at the end of lectureSlide 54Public FinanceInstructor: John HartmanToday: An introduction to Econ 130 A review of microeconomics Introduction to public financeBefore we begin…Remember that this is a small class  Ask questions if things are not clearThe syllabus is posted online  See http://econ.ucsb.edu/~hartman/For most of you, attendance is important if you want to get a good gradeBefore we begin…I expect you to know the following toolsCalculusDerivatives, integrals, partial derivativesMicroeconomicsEcon 1, Econ 100A or 104A, Econ 100B or 104BMacroeconomics (although not as important for public finance)Econ 2, Econ 101 or 105If you are lacking on any of these skills, please make sure you are comfortable with these skills by next weekStructure of learningExpected time to spend on this class3 hours per unit per week12 hours per week totalFormat of learningRead firstLectureDo problems on your ownSolve problems in class and review sessionsTextbook for this classRosen/GayerPublic Finance, 8th editionPublished by McGraw-Hill/IrwinOffice hours and review sessionsOffice: NH 2028Office hours:Mondays 10:30-11:30 amWednesdays 9:30-10:30 amI plan on conducting one review session before each testTime and location to be announcedTestsThree tests, as of now scheduled for:Monday, April 28 (in lecture)Monday, May 19 (in lecture)Monday, June 8 (final, 4-6:30 pm)Some problems on tests will be similar to what we cover in practice problemsSome questions will require you to learn material and think your way throughLecture slidesI will post a subset of lecture slides on-lineUsually posted 2 days to a week before lectureTables and figures from your textbook will often not be postedOn-line slides are not meant to be a replacement to lectureGradingIf you do not miss a test:Two best tests count 40% eachLowest test counts 20%Exception: If your best test is the final, the final will count 60% and the other two tests count 20% eachIf you do miss a test, check the syllabus for detailsGradingTypical upper division Econ field class curve20-25% A+, A, or A-30-35% B+, B, or B-25-30% C+, C, or C-Remaining students: D+, D, D-, or FHowever, I will reward the class if you score well as a groupMore on this classEarly on, I will lecture the entire timeLater on many lectures will be about 55-60 minutes, followed by problem solvingSome classes will be devoted to a single topicSome classes will consist of two to four “mini-lectures”ProblemsEach week, I will post a few problemsThe following week, I will solve some of the problems at the end of each lecture, as time permitsI will also solve some problems at each review sessionTodayAn introduction to Econ 130What will we cover over the next 10 weeks?A brief review of Microeconomics (read Appendix)Supply, demand, and equilibriumUtilityBudget constraintsSubstitution and income effectsConsumer and producer surplusIntroduction to public finance: Begin Chapter 1An introduction to Econ 130This class covers four “units,” each with three to five lecturesUnit 1: Introduction and Microeconomic toolsUnit 2: Public goods, externalities, and government Unit 3: Health care and income redistributionIncludes guest lecture by Ted BergstromTentative topic: Bone marrow as a public goodUnit 4: Primary and secondary effects of taxesUnit 1 (begins today)Introduction and Microeconomic toolsAppendix: Microeconomics review and marginal analysisChapter 1: Introduction to public finance and governmentChapter 2: Empirical toolsChapter 3: Economic theory toolsChapter 8: Cost-benefit toolsUnit 2Public goods, externalities, and government Chapter 4: Public goodsChapter 5: ExternalitiesChapter 6: Government and political economyChapter 7: Government spending on educationUnit 3Health care and income redistributionChapter 9: Problems of insurance in the health care marketChapter 10: Government’s role in health careChapter 11: The structure of Social Security; stresses caused by the baby boom generationChapter 12: Conceptual issues of income redistributionChapter 13: Programs for the poorUnit 4Primary and secondary effects of taxesChapters 14 and 15, and parts of Chapter 16: Taxation, income distribution, and efficiencyParts of Chapters 17-21: Taxation on the national levelPersonal taxesCorporate taxesDeficit financeTax reformChapter 22: Taxation on a state and local levelMicroeconomics reviewSome topics you should already knowWe will assume standard casesIf you need review on these topics, look in the Rosen/Gayer (“R/G”) appendix, or books that you used in introductory or intermediate microeconomics classesSupply, demand, and equilibriumIn equilibrium, the supply and demand curves intersectWhen quantity supplied is higher than quantity demanded, there is a push for prices to go downExcess supplyWhen quantity supplied is lower than quantity demanded, there is a push for prices to go upExcess demandSupply and DemandEquilibrium: Q = 4, P = 6Example of excess demandFactors of demandPrice: Higher price  lower quantity demandedIncome: Most goods are normalNormal goods: Higher income means higher demandPrice of