Institut für Agribusiness Institut für Agrarpolitik und Marktforschung Hannover 14.11.07.ppt Prof. Dr. Dr. h.c. P. Michael Schmitz Giessen University Tashkent;

Institut für AgribusinessInstitut für Agrarpolitik und Marktforschung

Hannover 14.11.07.ppt

Prof. Dr. Dr. h.c. P. Michael Schmitz Giessen University

Tashkent; July 2014

Lecture in the frame of the SAMUz project

Empirical Research Methods

www.samuz.org



Part I

www.samuz.org



1. Definition

2. Principles of applied welfare economics

a) Welfare measurement for individuals

b) Aggregated welfare measurement

3. Welfare measurement in a closed economy

a) without state intervention: technological progress

increase of real income

b) with state intervention: taxes/subsidies

4. Welfare measurement in an open economy

Cost – Benefit AnalysisOutline



Government must make decisions regarding the adoption of public policies and projects.

The branch of economics that deals with how to evaluate proposed policies/projects is known as cost-benefit-analysis or applied welfare economics

Cost-benefit analysis-what is it about?-



Cost-Benefit-Analysis or Applied Welfare Economics

ObjectiveHow to use resources optimally to achieve the maximum well-being for the individualls in society

or more simplyto help society make better choices



Principles of applied welfare economics I

• “Welfare economics is the study of how the allocation of resources affects economic well-being” (Mankiw, 2004, p. 138).

• Assumptions: - welfare increases with an increase of the consumtion

- the social welfare is the sum of the welfare of all individuals

- utility can be measured cardinally and the utility of individuals can be

compared

- allocation of resources depends on the followed policy

- consumer sovereignty

- partial analysis



Principles of applied welfare economics- Starting points -

• perfect competition• no external effects• Kaldor-Hicks criterion (compensation test):

„State B is preferred to state A if at least one individual is made better off without making anyone worse off – not that all individuals are actually worse off – by some feasible redistribution (compensation) following the change. (Just et al., 2004, p. 32)

• the Pareto criterion is not used („if it is possible to make at least one person better off when moving from state A to state B without making anyone worse off, state B is ranked higher by society than state A“ Just et al., 2004, p. 15)

• a reference system is used



• utility is difficult to be observed and to be measured

• approximation for the measurement of utility: monetary units

• but: income and consumption decisions at various prices are observed and based on that money-based measurements of welfare effects are measured (Just et al., 2004, p. 98) !!!!!!

Welfare measurement of a single consumer I

Conditions:



Four possible Buyers’ Willingness to pay

Buyer Willingness to Pay(€)

JohnPaulGeorgeRingo

100 80 70 50



The Demand Curve

Price ofAlbum (€)

0 Quantity of Albums

Demand

1 2 3 4

80 Willingness to pay Paul

70 Willingness to pay George

50 Willingness to pay Ringo

Willingness to pay John100



Measuring Consumer Surplus with the Demand Curve

(a) Price = € 80Price of Album

(€)

50

70

80

0

100

Demand

1 2 3 4Quantity of albums

John’s Consumer Surplus(€ 20)



Measuring Consumer Surplus with the Demand Curve

(b) Price = € 70Price of Album

(€)

50

70

80

0

100

Demand

1 2 3 4

Total Consumer Surplus (€ 40)

Quantity of Albums

Consumer Surplus John(€ 30)

Consumer SurplusPaul (€ 10)



Quantity

Consumer Surplus at different PricesPrice

0

Demand

A

BCP1

Q1

P2

Q2

Consumer Surplus to New Consumers

Additional Consumer Surplus to Initial Consumers

Initial Consumer Surplus

D EF

How the Price Affects Consumer Surplus



Welfare measurement of a single consumer II













• Consumer surplus equals buyers’ willingness to pay for a good minus the amount they actually pay for it.

• Consumer surplus measures the benefit buyers get from participating in a market.

• Consumer surplus can be computed by finding the area below the demand curve and above the price.



Production Costs of Four Possible Sellers

Seller Cost (€)

Maria 900

Luise 800

Georgine 600

Grandmother 500



The Supply Schedule

Price (€)

Sellers Quantity supplied

900 Maria, Luise, Georgine, Grandmother 4

800–900 Luise, Georgine, Grandmother 3

600–800 Georgine, Grandmother 2

500–600 Grandmother 1

500 None 0



The Supply Curve

Quantity

Price(€)

500

800

900

0

600

1 2 3 4

Supply

Maria‘s cost

Luise‘s cost

Georgine‘s cost

Grandmother’s cost



Measuring Producer Surplus with the Supply Curve

Quantity

Price(€)

500

800

900

0

600

1 2 3 4

(a) Price = € 600

Grandmother’s producersurplus (€ 100)

’

Supply



Measuring Producer Surplus with the Supply Curve

Quantity

Price(€)

500

800

900

0

600

1 2 3 4

(b) Price = € 800

Georgine’s producersurplus (€ 200)

Total producer surplus(€ 500)

Grandmother’s producersurplus (€ 300)

Supply



How the Price Affects Producer Surplus

Quantity

(a) Producer Surplus at Price P1

Price

0

P1

Supply

BC

A

Q1

Producer Surplus



How the Price Affects Producer Surplus

Quantity

(b) Producer Surplus at Price P2

Price

0

P1

BC

Supply

A

Initial producersurplus

Q1

P2

Q2

Producer surplusto new producers

Additional producer surplus to initial producers

D E F



Welfare measurement of a single producer










• Producer surplus equals the amount sellers receive for their goods minus their costs of production.

• Producer surplus measures the benefit sellers get from participating in a market.

• Producer surplus can be computed by finding the area below the price and above the supply curve.



Welfare measurement of a single producer and consumer



Principles of applied welfare economics -aggregation over individuals-



Principles of applied welfare economics -aggregation over individuals-



Social Welfare-the surplus concept-



Social Welfare-the willingness to pay concept-









Social Welfare-the surplus and the willingness to pay concept-



Social Welfare

Surplus conceptSurplus concept(indirect)

W = CS + PS

W welfareCS consumer’s surplusPS producer’s surplus

Willingness to Pay conceptWillingness to Pay concept(direct)

W = WtP – VC W = WtP – VC W WelfareWtP Willingness to Pay

(„Nutzen“)VC variable costs

Both concepts should give the same result!



• With the help of consumer and producer surplus

we can answer the following question:– is the allocation of resources through the market

function somehow wished?

• The allocation of the resources is efficient when the maximum total surplus is achieved

Efficieny of the market equilibrium


Hannover 14.11.07.pptCopyright©2003 Southwestern/Thomson Learning

Quantity

Price

0

Supply

Demand

Costto

sellers

Costto

sellers

Valueto

buyers

Valueto

buyers

Value to buyers is greaterthan cost to sellers.

Value to buyers is lessthan cost to sellers.

Equilibriumquantity

Figure 8 The Efficiency of the Equilibrium Quantity



• With the help of consumer and producer surplus

we can answer the following question:– is the allocation of resources through the market

function somehow wished?

• The allocation of the resources is efficient when the maximum total surplus is achieved

Efficieny of the market equilibrium



• Because the equilibrium outcome is an efficient allocation of resources, the social planner can leave the market outcome as he/she finds it.

• This policy of leaving well enough alone goes by the French expression laissez faire.

Evaluation of the market equilibrium



• Three Insights Concerning Market Outcomes– Free markets allocate the supply of goods to the

buyers who value them most highly, as measured by their willingness to pay.

– Free markets allocate the demand for goods to the sellers who can produce them at least cost.

– Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.

Market Efficiency




W = CS + PS + St

W welfareCS consumer’s surplusPS producer’s surplusSt Budget effects or

taxpayer’s effects

Willingness to Pay conceptWillingness to Pay concept(direct)

W = WtP – VC + (C)W = WtP – VC + (ER – IE) W WelfareWtP Willingness to Pay

(„Nutzen“)VC variable costs(C Net foreign currency refundER Export RefundIE Import Expenditure)


Social Welfare



b

PS = + b + c CS = + a – b W = + a + c

WtP = +a+c+d+e-[ VC= +d+e ] W = +a+c

Welfare effects of income increase

quantity

price

supply

D0

D1



CS = +a+b+c PS = –a +d+e W = +b+c+d+e

WtP = +c +e+f-[ VC= –b –d +f ] W =+b+c+d+ef

quantity

price

Welfare effects of technological progress

S1

S0

D



The deadweight loss of taxation

- production tax as amount of tax per production unit-

P0

Producer i Market

quantity

price

tMCiSi=2q

QSiQSi,new

MCi newSi new =2q+t

tS0

S1

D

quantity

price

QS,DQS,D

mew

P0

PD

PS

a bc d

ΔCS=-a-bΔPS=-c-dΔSt=a+c ΔW=-b-d


Hannover 14.11.07.pptCopyright © 2004 South-Western

Consumersurplus

Producersurplus

Priceof Steel

0 Quantityof Steel

Domesticsupply

Domesticdemand

Equilibriumprice

Equilibriumquantity

Figure 1The Equilibrium without International Trade



• Equilibrium Without Trade – Results:

• Domestic price adjusts to balance demand and supply.• The sum of consumer and producer surplus measures

the total benefits that buyers and sellers receive.

The Equilibrium without international trade



• Equilibrium Without Trade– Assume:

• A country is isolated from rest of the world and produces steel.

• The market for steel consists of the buyers and sellers in the country.

• No one in the country is allowed to import or export steel.

The determinants of trade



• What determines whether a country imports or exports a good?

• Who gains and who loses from free trade among countries?

• What are the arguments that people use to advocate trade restrictions?

Determinants of trade



• If the country decides to engage in international trade, will it be an importer or exporter?

The World Price and Comparative Advantage



• The effects of free trade can be shown by comparing the domestic price of a good without trade and the world price of the good. The world price refers to the price that prevails in the world market for that good.




• If a country has a comparative advantage, then the domestic price will be below the world price, and the country will be an exporter of the good.




• If the country does not have a comparative advantage, then the domestic price will be higher than the world price, and the country will be an importer of the good.




Priceof Steel

0Quantityof Steel

Domesticsupply

Priceafter

trade Worldprice

DomesticdemandExports

Pricebeforetrade

Domesticquantity

demanded

Domesticquantitysupplied

Figure 2 International Trade in an Exporting Country



D

C

B

A

Priceof Steel

0 Quantityof Steel

DomesticsupplyPrice

aftertrade World

price

Domesticdemand

Exports

Pricebefore

trade

Figure 3 How Free Trade Affects Welfare in an Exporting Country



D

C

B

A

Priceof Steel

0 Quantityof Steel

DomesticsupplyPrice

aftertrade World

price

Domesticdemand

Exports

Pricebefore

trade

Producer surplusbefore trade

Consumer surplusbefore trade

Figure 3 How Free Trade Affects Welfare in an Exporting Country



How Free Trade affects welfare in an exporting country



• The analysis of an exporting country yields two conclusions:– Domestic producers of the good are better off, and

domestic consumers of the good are worse off.– Trade raises the economic well-being of the nation

as a whole.

The winners and losers from trade



• International Trade in an Importing Country– If the world price of steel is lower than the

domestic price, the country will be an importer of steel when trade is permitted.

– Domestic consumers will want to buy steel at the lower world price.

– Domestic producers of steel will have to lower their output because the domestic price moves to the world price.

The gains and losses of an importing country



Priceof Steel

0 Quantity

Priceafter

trade

Worldprice

of Steel

Domesticsupply

DomesticdemandImports

Domesticquantitysupplied

Domesticquantity

demanded

Pricebeforetrade

Figure 4 International Trade in an Importing Country



C

B D

A

Priceof Steel

0 Quantityof Steel

Domesticsupply

Domesticdemand

Priceafter trade

Worldprice

Imports

Pricebefore trade

Figure 5 How Free Trade Affects Welfare in an Importing Country



C

B

A

Priceof Steel

0 Quantityof Steel

Domesticsupply

Domesticdemand

Priceafter trade

Worldprice

Pricebefore trade

Consumer surplusbefore trade

Producer surplusbefore trade




C

B D

A

Priceof Steel

0 Quantityof Steel

Domesticsupply

Domesticdemand

Priceafter trade

Worldprice

Imports

Pricebefore trade

Producer surplusafter trade

Consumer surplusafter trade




How Free Trade affects welfare in an importing country



• How Free Trade Affects Welfare in an Importing Country– The analysis of an importing country yields two

conclusions:• Domestic producers of the good are worse off, and

domestic consumers of the good are better off.• Trade raises the economic well-being of the nation as a

whole because the gains of consumers exceed the losses of producers.




• The gains of the winners exceed the losses of the losers.

• The net change in total surplus is positive.




• A tariff is a tax on goods produced abroad and sold domestically.

• Tariffs raise the price of imported goods above the world price by the amount of the tariff.

The effects of a tariff



Sp

qD

pi

qwA qw

N

pw

qiNqi

A

a c db

qwM

qiM

The effects of an import tariff (small country)



Sp

qD

pi

qwA qw

N

pw

qiNqi

A

PS = + a CS = – a – b – c – d St = + c W = – b – d

a c db

qwM

qiM




Sp

qD

pi

qiD qi

S

pw

qwSqw

D

qiX

qwX

a c db

The effects of an export subsidy (small country)



Sp

qD

pi

qiD qi

S

pw

qwSqw

D

qiX

qwX

PS = + a + b + c CS = – a – b St = - [b + c + d ] W = – b – d

a c db




Sp

qD

increase of variable costs

qiD qi

SqwD qw

S

pi

pw

decrease of Willingness to Pay




Sp

qD

increase of variable costs

increase of export refund

qiD qi

SqwD qw

S

pi

pw

decrease of Willingness to Pay




What happens if a country is a big one and applies a foreign trade policy?

1. Change of domestic price level due to import tariff and/or export subsidy

2. Change of imported/exported quantities (i.e. lower quantity is imported and more is exported

3. Increase of supply in the world markets

4. Decrease of world market prices!



Why does the higher export supply decrease the world market price?

EA=Export Supply= (Exportangebot)

IN=Import Demand=(Importnachfrage)

Price

Quantity



Welfare Effects of the guaranteed Price(Big exporting country)

Assumption: The higher export supply leads to the decrease of the world market price from

Pw to P`w ΔCS = -b-c ΔPS = b+c+d ΔST = -(c+d+e+g+h+i) ΔW = -c-e-g-h-i Allocation TOT Losses Losses

Price

Quantity



Summary

• There are various arguments for restricting trade: protecting jobs, defending national security, helping infant industries, preventing unfair competition, and responding to foreign trade restrictions.

• Economists, however, believe that free trade is usually the better policy.



References used, suggested reading

Henrichsmeyer, W. and H. P. Witzke (1994). Agrarpolitik Band 2, Bewertung und Willensbildung. Stuttgart: Eugen Ulmer Verlag

Just, R. E., Hueth, D. L. and A. Schmitz (2004). The Welfare Economics of Public Policy, A Practical Approach to Project and Policy Evaluation. Edward Elgar Publishing.

Mankiw, N. G. (2004). Principles of Economics, 3rd Edition. Thomson South-Western.



Part IIwww.samuz.org



4. Recap - Welfare measurement in an open economy

5. External effects

a) negative externalities

b) positive externalities

6. Market power and rent seeking: monopoly7. Second best theory: a) monopoly and negative ext. effects

b) price support and unemployment

8. Welfare measurement of multiple price changes

9. Empirical examples of cost-benefit Analysis

Cost – Benefit AnalysisOutline



D

p*

q*

CS = WtP – CE

Welfare measurement of a single consumer

Consumer surplus(CS)Consumer expenditure (CE)

quantity

price



S

p*

q*

PS = PR – VC

quantity

price


producer’s surplus (PS)

Variable Costs (VC)



S

D

p*

q*

producer’s surplus

consumer’s surplus

quantity

price

Welfare measurement of single producers & consumers




W = CS + PS + St

W welfareCS consumer’s surplusPS producer’s surplusSt Budget effects or

taxpayer’s effects

Willingness to Pay conceptWillingness to Pay concept(direct)W = WtP – VC + (C)W = WtP – VC + (ER – IE) W WelfareWtP Willingness to PayVC variable costsC Net foreign currency refundER Export RefundIE Import Expenditure)


Social Welfare



Exercise

Calculation of CS and PSGiven a demand function: XD = 12 - p and a supplyfunction: XS = 2 p

1. find p* and x * used in the demand or supply functions

2. calculate the consumer surplus (CS)3. calculate the produce surplus (PS) and the total

welfare



Exercise Answer

CS = 0.5(pp - p *) x * CS = 0.5(12 - 4)8 = 32 PS = 0.5 (p * - pS) x * PS = 0.5 (3 - 0) 8 = 16

Total Welfare = CS+PS Total Welfare = 32+16= 48



The deadweight loss of taxation

- production tax as amount of tax per production unit-

P0

Producer i Market

quantity

price

tMCiSi=2q

QSiQSi,new

MCi newSi new =2q+t

tS0

S1

D

quantity

price

QS,DQS,D

mew

P0

PD

PS

a bc d

ΔCS=-a-bΔPS=-c-dΔSt=a+c ΔW=-b-d



C

B D

A

Priceof Steel

0 Quantityof Steel

Domesticsupply

Domesticdemand

Priceafter trade

Worldprice

Imports

Pricebefore trade




Sp

qD

pi

qwA qw

N

pw

qiNqi

A

PS = + a CS = – a – b – c – d St = + c W = – b – d

a c db

qwM

qiM




Welfare Effects of the guaranteed Price(Big importing country)

Assumption: The lower import demand leads to the decrease of the world market price from Pw

to P`w ΔCS = -a-b-c-d ΔPS = a ΔST = c+e ΔW = -b-d+e Allocation TOT Losses Losses

Q

Price



Welfare Effects of the guaranteed Price(Big exporting country)

Assumption: The higher export supply leads to the decrease of the world market price from

Pw to P`w ΔCS = -b-c ΔPS = b+c+d ΔST = -(c+d+e+g+h+i) ΔW = -c-e-g-h-i Allocation TOT Losses Losses

Price

Quantity



Externalities

An externality refers to the uncompensated impact of one person’s actions on the well-being of a bystander (Mankiw, 2004)

Case when an action of an economic agent affects the utility or production possibilities of another in a way that is not reflected in the market place (Just et al., 2004)



• Negative externalities lead markets to produce a larger quantity than is socially desirable.

• Positive externalities lead markets to produce a smaller quantity than is socially desirable.

Externalities

• Appear when there is influence of the economic activities of producer or consumers (economic units) over other economic units, they cause advantages or disadvantages without being evaluated

• Externalities cause markets to be inefficient, and thus fail to maximize total surplus



Negative external effects

quantity

price

D

SMC private

How can I show in this

diagram the social effects?

With the help of the damage function!



Damage function

= Relationship between production quantities and negative external effects

quantity

External effect in monetary units

Negative external effect (NEE) = ¼ q2

Marginal External Effect (MEE) = qq

NEE21



quantity

price

D

SMC private

S*MC social=MC private + MEE

MEE (marginal external effect)

qprivateqsocial

Negative external effects (without trade)



quantity

price

D

SMC private

S*

MEE

qprivateqsocial

ab

c

d

Reference system: qsocial

ΔVCsocial = ΔVCprivate + ΔVCext

= c + d + d= c + d + a + b

Negative external effects (without trade)

pprivate

psocial



Internalising an externality

Altering incentives so that people take into account the externality and act analogous



The Types of Private Solutions

• Moral norms and social sanctions

• Voluntary organizations (foundations and associations)

• Contracts between parties



Coase Theorem:

The private economic actors can solve the problem of externalities among themselves. Whatever initial distribution of rights, the interested parties can always reach a bargain in which everyone is better off and the outcome is efficient.



Why private solutions do not always work?

• Transaction costs • Breakdown of agreements• Coordination problem of the large number of

interested parties



Internalising an externality

• Achieving the Socially Optimal Output• The government can remedy an externality by

Regulation, i.e. making certain behaviours either required or forbidden or

• by using market based policies like imposing a tax (or a subsidy) on the producer to reduce (or increase) the equilibrium quantity to the socially desirable quantity. Example Pigovian Taxes



quantity

price

D

SMC private

S* MC social

qprivateqsocial

ΔCS = -a-b-c ΔPS = -e-f-g ΔST = a+b+e+f ΔEA1 = g+c+d ΔW = +d

Internalising an externalityPigovian taxes

P2

Po

P1 da b c

e f g

1 External Agents



Positive external effects (with trade)

quantity

price

D

S*

SMC private

Pw

Pi

abc

d

e

qS,p qS,s qD,2 qD,1

Import tariff:

ΔU = -d-e-(ΔVCs) = -(+c)-(ΔIE) = -(-b-c-e) ΔW = +b-d

ΔU = 0-(ΔVCs) = -(+c)-(ΔIE) = -(-b-c) ΔW = +b

by-product distortion

Producer subsidy:



Monopoly

quantity

price

monopoly

n

ii MCMCS

1

Pcomp.

qcomp.

D



Monopoly

quantity

price

monopoly

n

ii MCMCS

1

Pcomp.

qcomp.qmon.

MRmonopoly

D selling price function

Pmon



Quantity of Output

Demand

(a) A Competitive Firm’s Demand Curve (b) A Monopolist’s Demand Curve

0

Price

Quantity of Output0

Price

Demand

Figure 2 Demand Curves for Competitive and Monopoly Firms



Quantity of Water

Price

$1110

9876543210

–1–2–3–4

Demand(averagerevenue)

Marginalrevenue

1 2 3 4 5 6 7 8

Figure 3 Demand and Marginal-Revenue Curves for a Monopoly



QuantityQ Q0

Costs andRevenue

Demand

Average total cost

Marginal revenue

Marginalcost

Monopolyprice

QMAX

B

1. The intersection of themarginal-revenue curveand the marginal-costcurve determines theprofit-maximizingquantity . . .

A

2. . . . and then the demandcurve shows the priceconsistent with this quantity.

Figure 4 Profit Maximization for a Monopoly



Monopolyprofit

Averagetotalcost

Quantity

Monopolyprice

QMAX0

Costs andRevenue

Demand

Marginal cost

Marginal revenue

Average total cost

B

C

E

D

Figure 5 The Monopolist’s Profit



Monopoly

quantity

price

monopoly

n

ii MCMCS

1

Pcomp.

qcomp.qmon.

MRmonopoly


Pmon

a b

cΔCS = -a-bΔPS = +a-cΔbudget= 0ΔW = -b-c



quantity

price

Pcomp.

qcomp.qmon.

MRmonopoly


Pmon

Monopoly and negative external effects

Sprivate

Ssocial

-

qs

-



quantity

price

Pcomp.

qcomp.qmon.

MRmonopoly


Pmon

Monopoly and negative external effects

Sprivate

Ssocial

qs



Price support and unemployment

- -

quantity

price D Sprivate

Pw

Pi



Price support and unemployment

quantity

price D Sprivate

Ssocial

Pw

Pi

a b c d

efg

ΔU = -b-e-(ΔVC) = -(+g) ΔER = e+f+g-(ΔIE) = 0 ΔW = -b+f



Welfare measurement of multiple price changes

hrs of labour

wage

Value of marginal product(demand curve for labor)

Input (factor) market Output market

quantity

price S(W0)

a

PS = total revenue – variable cost= value of product – wage= a

W0

L0




a) Factor price changes (falls), by constant output prices

hrs of labour

wage

D


quantity

price

aW0

L0

S(W0)

W1

L1

b cd

S(W1)P0

_

q0 q1

y zx

ΔPS = b+c = z




b) Output price changes (increases), by constant input prices

hrs of labour

wage

D (P0)


quantity

price

aW0

L0

S(W0)

L1

bP0

_

q0 q1

ΔPS = a = b

P1

D (P1)




c) Simultaneous changes of input & output prices, 1 variable factor

hrs of labour

wage

D (P0)


quantity

price

aW0

L0

S(W0)

L1

bP0

ΔPS = x+y+z

P1

D (P1)

S(W1)

W1

c d

v x

y z

ΔPS = a+b+d




- Sequential measurement of welfare -

a)P0 → P1, W0 conts.

W0 → W1, P1 conts.W0 → W1, P0 conts.P0 → P1, W1 conts.

ΔPS(output) = +aΔPS(input) = +y+zΔPS = a+y+z

ΔPS(input) = +yΔPS(output) = +a+bΔPS = a+b+y

b)

ΔPS = x+y+z = a+b+d = a+y+z = a+b+y

b=z a=x d=y



Empirical Measurement of Economic Policies

Numeric equilibrium models have been developed to evaluate ex ante effects of economic policies: Policy Impact Studies

General Equlibrium Models explain the whole economies, whereas the Partial Equlibrium Models are usefull for more elaborate sectoral analysis

•Comparative static-Dynamic•One product-multi product•One region-multi region•Homogenous goods-heterogenous goods



Computable General Equilibrium (CGE)

The General Equilibrium models consist of a system of equations, which cover all the money and goods flows in an economy

For the calculation of General Equilibrium Models variables must be determined eather as the model-endogenous or exogenous

By recursive iteration all markets are simultaneously being brought into the equilibrium.Therefore, wages, prices, investment and growth, state budget, export and import volumes, interest rates and other variables can be determined.



A SAM is a square matrix in which each transaction is recorded only once in a cell of its own – it is conventionally agreed that the entries made in rows represent incomes or receipts, whilst the entries made in columns represent outlays or expenditures - so, for each row there is a corresponding column, i.e. for every income there exists a corresponding expenditure, with their totals being equal.

Social accounting Matrix SAM


Hannover 14.11.07.pptwww.samuz.org

Thank you for your attention!

Documents

Institut für Agribusiness Institut für Agrarpolitik und Marktforschung Hannover 14.11.07.ppt Prof. Dr. Dr. h.c. P. Michael Schmitz Giessen University Tashkent;