Ch10-Slides - Chapter Ten Competitive Markets: Applications...

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Competitive Markets: Applications Chapter Ten Chapter Ten
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Chapter Ten Overview 1. Motivation: Agricultural Price Supports 2. Deadweight Loss A Perfectly Competitive Market Without Intervention Maximizes Total Surplus" 3. Government Intervention – Who Wins and Who Loses? 4. Examples of Various Government Polices Excise Taxes Price Ceilings Production Quotas Import Tariffs 5. Conclusions 1. Motivation: Agricultural Price Supports 2. Deadweight Loss A Perfectly Competitive Market Without Intervention Maximizes Total Surplus" 3. Government Intervention – Who Wins and Who Loses? 4. Examples of Various Government Polices Excise Taxes Price Ceilings Production Quotas Import Tariffs 5. Conclusions Chapter Ten
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Is Support a Good Thing? Department of Agriculture supports the prices of about 20 commodities. From 1983 t0 1992, it cost more than $140 billion. “Acreage limitation programs ”: (wheat) Farmers agree to restrict the number of acres they plant, and they have the option to sell their crops to the government at a guaranteed price. “Poundage quotas ”: the government limits the quantity of edible peanuts that a farmer could sell. For many years US sugar producers have relied on restrictive import quotas to maintain sugar price.
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Demand Supply Q P Q* P* A B C D Q 1 P d P s Chapter Ten Surplus Maximization in Competitive Equilibrium
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Chapter Ten Deadweight Loss At the Perfectly Competitive Equilibrium, (Q*,P*), Total Surplus is maximized. At the Perfectly Competitive Equilibrium, (Q*,P*), Total Surplus is maximized. Consumer's Surplus at (Q*,P*): ABC Producer's Surplus at (Q*,P*) : DBC Total Surplus at (Q*,P*): ADC
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Chapter Ten Deadweight Loss Definition: A deadweight loss is a reduction in net economic benefits resulting from an inefficient allocation of resources. Definition: A deadweight loss is a reduction in net economic benefits resulting from an inefficient allocation of resources.
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Demand Supply Q P Q* P* A B C D P s P d Q 2 Chapter Ten Surplus Maximization in Competitive Equilibrium
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Chapter Ten Definition: Economic Efficiency means that the total surplus is maximized. "Every consumer who is willing to pay more than the opportunity cost of the resources needed to produce extra output is able to buy; every consumer who is not willing to pay the opportunity cost of the extra output does not buy.“ "All gains from trade (between buyers and suppliers) are exhausted at the efficient point." The perfectly competitive equilibrium attains economic efficiency. Economic Efficiency
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Yes Zero Rises Falls Falls Import Quotas Yes Positive Rises Falls Falls Import Tariffs Yes Zero Rise or Fall Falls Falls; Excess Supply Production Quotas Yes Zero Rise or Fall Falls Falls; Excess Supply Minimum Price Floors for Producers Yes Zero Falls Rise or Fall Falls; Excess Demand Maximum Price Ceilings for Producers Yes Negative Rises Rises Rises Subsidies to Producers Yes Positive Falls Falls Falls Excise Tax Effect on Effect on
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This note was uploaded on 07/17/2008 for the course ECON 501.02 taught by Professor Yang during the Winter '08 term at Ohio State.

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Ch10-Slides - Chapter Ten Competitive Markets: Applications...

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