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...

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

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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...

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