Calculating Costs in a Regulatory ContextEstimating CostsEstimating Costs
Theoretically Measure of Social CostsFor a single market, the theoretically correct measure of economic costs is the loss in consumer and producer surplusIn the case of a supply increase◦Consumer surplus unequivocally declines◦The effect on producer surplus is ambiguous (generally)The social cost and its allocation depend on the elasticity of supply and demandEstimating Costs
Example of Calculating the Loss in SurplusEstimating Costs
One market vs. multiple marketsIf the costs occur in one market but the benefits to another, then they may need to be analyzed separately.Estimating Costs
Analyzing Net Benefits in One Market with AbatementIf the costs and benefits of an action occur in the same market, then they can be analyzed with one graph.