PAM200Lecture15 - PAM 200 Lecture 15 Prelim#2 this Thursday...

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    PAM 200 Lecture 15 Prelim #2 this Thursday Will cover all material presented in  lectures 8-15 (as presented in  class) Textbook: pages 123-300 Same format as prelim #1 No class meeting Tuesday April 6th
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    PAM 200 Lecture 15 Agenda Consumer Surplus and price changes Producer Surplus Competition and Social Welfare Why producing more or less than  equilibrium reduces welfare Policies than reduce welfare
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    Consumer Surplus and Price  Changes Recall definition of consumer surplus Note that the loss in CS from a price  increase will be  larger for less elastic   demand curves (assume that the curve  goes through the same initial point)
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    Producer Surplus Producer surplus is defined as the difference  between the price that a good sells for and  the minimum amount necessary to induce the  seller to produce that quantity Recall that the supply curve shows the  producer’s willingness to produce a  certain number of units  at various prices,  ceteris paribus
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      Producer Surplus (con’t) The firm’s short run supply curve is its  marginal cost curve above its minimum  average variable cost  The area under the supply curve up to the  number of units actually produced is the firm’s  variable costs recall that marginal costs are costs that vary  with output, so the area under that curve  represents all of the costs that vary with  output
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    Producer Surplus (con’t) Recall that p *q is the firm’s revenue  Producer surplus is that area minus  firm’s variable costs
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