Econ 17

# Econ 17 - 1 10 9 8 7 S 6 P 2 5 P P 1 A B D 4 3 E D 2 1 0 Q...

This preview shows pages 1–3. Sign up to view the full content.

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 10 9 8 7 S 6 P 2 5 P P 1 A B D 4 3 E D 2 1 0 Q 2 Q 1 Q 3 0 1 2 3 4 5 6 7 8 9 10 Q 1 Agricultural Price Support 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen October 24, 2007 Lecture 17 Supply Restrictions, Tax, and Subsidy Outline 1. Chap 9: Agricultural Price Support 2. Chap 9: Supply Restrictions 3. Chap 9: Tax and Subsidy 1 Agricultural Price Support In this case, government sets prices higher than the free market level, and buys excess supply (see Figure 1). The buyer’s price is shown on the y-axis in the following graphs. The original consumer surplus equals the area between the Figure 1: Agricultural Price Support. demand curve and the line of price P 1 ; after the price support, it equals the area between the demand curve and the line of price P 2 , thus Δ CS = − ( A + B ) . The original producer surplus equals the area between the supply curve and the line of price P 1 ; after the price support, it equals the area between the supply Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 10 9 8 7 S P 6 1 P A B P 5 0 C P 4 2 3 D 2 1 0 Q 1 Q 0 0 2 4 6 8 10 Q 2 Supply Restrictions 2 curve and the line of price P 2 , thus Δ PS = A + B + D. Government buys quantity Q 3 − Q 2 at price P 2 ; the cost equals the area of the rectangular Δ G = − ( B + D + E ) ....
View Full Document

## This note was uploaded on 04/26/2009 for the course ECON MICRO taught by Professor Chen during the Spring '09 term at MIT.

### Page1 / 6

Econ 17 - 1 10 9 8 7 S 6 P 2 5 P P 1 A B D 4 3 E D 2 1 0 Q...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online