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PROFIT AND EXPENDITURE FUNCTIONS IN BASIC PUBLIC FINANCE: AN EXPOSITORY NOTE
Author(s) -
GREENBERG EDWARD,
DENZAU ARTHUR T.
Publication year - 1988
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1988.tb01675.x
Subject(s) - economics , subsidy , microeconomics , excise , profit (economics) , reservation , public expenditure , public finance , macroeconomics , political science , law , market economy
This paper demonstrates how profit and expenditure functions may be used to prove fundamental results about deadweight losses suffered by consumers, producers, and resource owners. Losses arising from excise taxes and subsidies are examined and, in the case of a tax, the individual level analysis is extended to the market level in a partial equilibrium setting. In addition, profit and expenditure functions are applied to quantity constraints, two‐part tariffs, all‐or‐nothing choices, and reservation prices. Although no new results are derived, the paper provides motivation for the study of indirect objective functions and duality.