Unformatted text preview: S. Nageeb Ali May 6, 2008 No class this Thursday 5/8 Midterm 2 weeks from today: Tuesday, 5/20 PS Solutions will be posted on Friday PS on Chapter 9 also will be posted on Friday with solutions posted the following week Review session this and next week on problem set Special review session for midterm on Friday, May 16 Derived competitive equilibrium Chapter 9 discusses role of govt policy on competitive equilibrium
How to measure "consumer welfare" and "producer welfare" in these models How competition maximizes consumer welfare Effects of various government policies on prices and welfare Problems here will be a little different from earlier
Rely on greater geometric / graph based understanding ! " #
Consumer surplus is area between demand curve and price
CS is between Compensating Variation (CV) and Equivalent Variation (EV) Will simply work with CS $ ! " #
Supply curve = MC curve ! %& Producer Surplus = Area between price and supply curve Recall that MC(q) = dVC(q) / dq VC(0) = 0 So by Fundamental Theorem of Calculus, VC(q) = $ ! " # ' " #
Suppose MC(q) = 2q for all q. For each price, p, what is PS? ' " #
Suppose MC(q) = q2. For each p, what is PS? ( )$ ! " # Study effects of shock that do not affect fixed costs Use to measure effect on entire industry, not just specific firm, e.g., increase in price * # # +
W = CS + PS Weighs consumer and producer surplus equally Simply one measure of welfare, but has many conceptual issues:
Producers are usually consumers (in every day lives), so may not wish to create such divisions May wish to care about the "poorest" member of society Not clear what it means to add up utilities Groups may lobby govt to weigh unevenly $ ' " #
Suppose QD = 16 P, and QS = 3P.
What is the equilibrium price and quantity? What is CS and PS at the equilibrium? ' " , #
What are CS and PS now? What is the deadweight loss? - Suppose Q is constrained to be 3. $ ...
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- Spring '07
- Supply And Demand, S. Nageeb Ali, PS Solutions, competitive equilibrium Chapter, consumer welfare Effects, Special review session