Chapter 7 - Chapter 7 Efficiency and Exchange Dead Weight...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 7 Efficiency and Exchange Dead Weight Loss : Loss to both Supply and Demand due to government interference. The point is to Maximize Efficiency of goods/services used. Equilibrium Customer Sees: Firm Sees: Example: Price Ceiling (cannot be sold higher than set price) Customer sees: Firm Sees: = Lost Economic Surplus $800/day Dead Weight Loss = Consumer Surplus $900/day = Producer Surplus $100/day S D P 2.0 1.4 3 Q 1,000s of barrels $/gallon Consumer Surplus P 2.0 1.4 S D 1 3 5 Q 1,000s of barrels $/gallon S D P Q milions/month $/gallon Subsidy = $1 S D P 2.0 Q millions/month $/gallon Consumer Surplus Reduction in total economic surplus: Cost to govt is $6 mill Benefit of subsidy is $5 mill Loss of economic surplus is $1 mill Market Equilibrium and Efficiency Efficient : a situation is efficient if no change is possible that will help some people without harming others Figure 7.1 A Market in Which Price Is Figure 7....
View Full Document

This note was uploaded on 04/29/2008 for the course ECON 160 taught by Professor Khan during the Spring '08 term at Hobart and William Smith Colleges.

Page1 / 5

Chapter 7 - Chapter 7 Efficiency and Exchange Dead Weight...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online