281-10x - Competitive Markets Applications Chapter 10 Competitive Markets Applications 1 Surplus maximization in competitive equilibrium i ii iii iv

281-10x - Competitive Markets Applications Chapter 10...

This preview shows page 1 - 7 out of 28 pages.

Competitive Markets: Applications Chapter 10
Competitive Markets: Applications 1. Surplus maximization in competitive equilibrium i. Consumer surplus ii. Producer surplus iii. Total surplus iv. Deadweight loss 2. Excise Taxes 3. Price Ceilings and Floors 4. Production Quotas 5. Import Tariffs
Total surplus The area under the demand curve and above the market price provides a measure of consumer surplus (CS) More on this at the end of chapter 5 Producer Surplus (PS) is the area above the market supply curve and below the market price. More on this at the end of chapter 9
1. Surplus Maximization in Competitive Equilibrium Demand Supply Q P Q* P* A B C D Q 1 P d P s F G E Consumer Surplus at (Q*,P*): ABC Producer Surplus at (Q*,P*) : DBC Total Surplus at (Q*,P*): ADC
Extra practice Given Market supply curve Q = 60P Find producer surplus when price is $2.50 per gallon How much does producer surplus change when price of milk increases from $2.50 to $4.00?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture