4.2 Valuing Inputs - Valuing Inputs Estimating Costs Estimating Costs Costs of Inputs from Production The dark shaded area is the cost of inputs

4.2 Valuing Inputs - Valuing Inputs Estimating Costs...

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Valuing Inputs Estimating Costs Estimating Costs
The dark shaded area is the cost of inputs from producing the good. Any government regulation that causes an increase in this dark shaded area is creating an opportunity cost. But changes in this region are not necessarily equal to the social cost of the change. . Costs of Inputs from Production Estimating Costs
Valuing Inputs Perfect competition; no price effects Government purchases q’ for a project. Suppliers provide q’ with no increase in price. There is no displaced consumer surplus. Opportunity cost equals the government expenditure. Benefits Costs Original buyers Sellers Project expenditures A Net Social Cost A Estimating Costs
Valuing Inputs Perfectly Inelastic Supply Government purchases land which is fixed in supply Price will rise, crowding out buyers This creates displaced consumer surplus and increased producer surplus Opportunity cost equals the government expenditure plus lost consumer surplus.

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