17-Measuring Welfare Effects

17-Measuring Welfare Effects - Applying the Competitive...

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1 Applying the Competitive Model: H ow to measure welfare effects of government policies? Reading: Chapter 9
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2 Consumer Surplus 1. Consumer surplus (CS) is the total net benefit or value that consumers receive beyond what they pay for the good Demand curve shows the willingness to pay for all consumers in the market Consumer surplus can be measured by the area between the demand curve and the market price
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3 Producer Surplus 1. Producer surplus (PS) is the total net benefit or revenue that producers receive beyond what it costs to produce a good The supply curve shows the amount that a producer is willing to take for a certain amount of a good Producer surplus can be measured by the area between the supply curve and the market price
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4 Consumer and Producer Surplus Consumer Surplus Quantity Price S D Q 0 5 9 Producer Surplus 3 Q D Q S
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5 Measuring Welfare Effects of Government Policies To determine the welfare effect of a governmental policy, we can measure a change in total surplus
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This note was uploaded on 07/06/2009 for the course ECON 102A taught by Professor Sorensen during the Spring '08 term at UC Riverside.

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17-Measuring Welfare Effects - Applying the Competitive...

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