071107 - u Producer surplus Difference between the price...

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Sheet1 Page 1 071107 | ------- The supply curve can be used as the Marginal Social Cost curve the same way the demand curve can be used as the Margin a Surplus: Benefit - Cost If the surplus at one slice of pizza is $19.50 and at two it is $17, then the total surplus on all slices at this point is $36.50. The equilibrium quantity indicates where all slices are produced where MSB > MSC. It also indicates where no slices are prod u By producing Q, where MSB = MSC, society's total surplus is as large as possible/maximized. Consumer surplus: Difference between the maximum price a consumer is willing to pay for a unit of the good (max price = val u The consumer surplus is half the area of the total triangle formed on the supply and demand curve (from 0 to the equilibrium q
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Unformatted text preview: u Producer surplus: Difference between the price actually received and the minimum price for which the producer would produce the unit (min pric e This would be the other half of the total area of the triangle. Consumer + Producer surplus = Total surplus Price Controls Price Ceiling: The govt sets the highest price that may legally be charged. Ex: Rent controls Price Floor: The govt sets the lowest price that may legally be paid. Ex: Agricultural price supports, minimum wage A price floor or ceiling could then make the equilibrium price illegal....
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