Producer_surplus_simulations_AEM630_ECON_430

# Producer_surplus_simulations_AEM630_ECON_430 - RTS = 1...

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RTS = 1 Fixed Price Endogenous price (downward sloping demand curve) Input subsidy tech change elastic cons inelastic cons elastic cons inelastic cons -1.5 -0.5 -1.5 -0.5 Policy values 80 0.4 2 ∆ Q ∆Pa ∆Pb ∆a ∆b Initial profits ∆profits RTS = < 1 Fixed Price Endogenous price (downward sloping demand curve) Input subsidy tech change elastic Dc inelastic Dc elastic Dc inelastic Dc ∆ Q ∆Pa ∆Pb ∆a ∆b Initial profits ∆profits Input subsidy production quota Production subsidy tech change production quota Production subsidy Input subsidy production quota Production subsidy tech change production quota Production subsidy

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DATA Let's say we have the following: Input share a Sha 0.3 Input share b Shb 0.7 Returns to scale RTS 1 Price P 2 Quantity Q 100 AND we know the input supply elasticities Input a supply elasticity ηa 0.2 Input b supply elasticity ηb 0.8 CALIBRATION We know from Cobb Douglas production elasticity for inpualpha = RTS/[1+(SHb/Sha)] 0.3 production elasticity for inpubeta = RTS - alpha 0.7 If we normalize Input prices, by definition input a price Pa = 1 1 input b price Pb = 1 1 So Input quantitities are input a quantity a = αPQ/Pa 60 input b quantity b = βPQ/Pb 140 Now we can calibrate the production function constant Constant G = Q/(a^alpha*b^beta) 0.92 And we can calibrate input supply function constant input a constant H = a/Pa^na 60 input a constant J = b/Pb^nb 140 POLICY EXPERIMENT Starting values Input price a set value at 1 1 Input price b set value at 1 1 Input a supply 60 Input b supply 140 Production 100 Input a demand 60 Input b demand 140 Excess Demand (set the sum of squares to zero to solve model) Solver: set cell C57 Input a 0 at minimum value 0 by Input b 0 changing cells C43 and SUM of the squares of excess demand 0 C44 NOTE THIS EXAMPLE IS OF A PRICE TAKER IN WORLD MARKETS SO OUTPUT PRICE IS FIXED ∆ Q 0 ∆Pa 0 ∆Pb 0 ∆a 0 ∆b 0 Initial profits 0 new profits = 0 ∆profits 0 A B C D E F 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68
DATA Let's say we have the following: Input share a Sha 0.3 Input share b Shb 0.7 Returns to scale RTS 1 Price P 2 Quantity Q 100 AND we know the input supply elasticities Input a supply elasticity ηa 0.2 Input b supply elasticity ηb 0.8 CALIBRATION We know from Cobb Douglas production elasticity for inpualpha = RTS/[1+(SHb/Sha)] 0.3 production elasticity for inpubeta = RTS - alpha 0.7 If we normalize Input prices, by definition input a price Pa = 1 1 input b price Pb = 1 1 So Input quantitities are input a quantity a = αPQ/Pa 60 input b quantity b = βPQ/Pb 140 Now we can calibrate the production function constant Constant G = Q/(a^alpha*b^beta) 0.92 And we can calibrate input supply function constant input a constant H = a/Pa^na 60 input a constant J = b/Pb^nb 140 POLICY EXPERIMENT 1 Subsidy 0.40 Starting values Input price a set value at 1 1 Input price b set value at 1 1 Input a supply 60 Input b supply 140 Production 100 Input a demand 100 Input b demand 140 Excess Demand (set the sum of squares to zero to solve model) Solver: set cell C57

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## This note was uploaded on 02/22/2009 for the course ECON 4300 taught by Professor Degorter during the Spring '09 term at Cornell.

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Producer_surplus_simulations_AEM630_ECON_430 - RTS = 1...

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