Chapter 9 Outline - Chapter 9: Applying the Competitive...

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Chapter 9: Applying the Competitive Model Main Topics 1. Consumer welfare: How much consumers are helped or harmed by a change in the equilibrium price can be measured by using information from demand curves or utility functions 2. Producer welfare: How much producers gain or lose from a change in the equilibrium price can be measured by using information from the marginal cost curve or by measuring the change in profits 3. Maximizing welfare: Competition maximizes a measure of social welfare based on consumer and producer welfare 4. Policies that shift supply curves: Government policies that limit the number of firms in competitive markets harm consumers and lower welfare 5. Policies that create a wedge between supply and demand: Government policies such as taxes, price ceilings, price floors, and tariffs that create a wedge between the supply and demand curve reduces the equilibrium quantity, raise the equilibrium price to consumers, and lower welfare 6. Comparing both types of policies: imports: Policies that limit supply (such as quotas or bans on imports) or create a wedge between supply and demand (such as tariffs , which are taxes on imports) have different welfare effects when policies reduce imports by equal amounts 9.1 Consumer Welfare Consumer welfare from a good is the benefit a consumer gets from consuming that good minus what the consumer paid to buy the good The demand curve reflects a consumer’s marginal willingness to pay: the maximum amount a consumer will spend for an extra unit Consumer surplus: the monetary difference between what a consumer is willing to pay for the quantity of the good purchased and what the good actually costs An individual’s consumer surplus is the area under the demand curve and above the market price up to the quantity the consumer buys Market consumer surplus is the area under the market demand curve above the market price up to the quantity consumers buy
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This note was uploaded on 05/03/2009 for the course PAM 200 taught by Professor Unur during the Spring '08 term at Cornell University (Engineering School).

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Chapter 9 Outline - Chapter 9: Applying the Competitive...

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