101A_lec19 - Economics 101A(Lecture 19 Stefano DellaVigna...

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Economics 101A (Lecture 19) Stefano DellaVigna April 2, 2009
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Outline 1. Producer Surplus 2. Consumer Surplus 3. Trade 4. Market Equilibrium in The Long-Run
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1 Welfare: Producer Surplus Nicholson, Ch. 11, pp. 371-374 (Ch. 9, pp. 261— 263, 9th) Producer Surplus is easier to de f ne: π ( p, y 0 )= py 0 c ( y 0 ) . Can give two graphical interpretations: Intepretation 1. Rewrite as π ( p, y 0 )= y 0 " p c ( y 0 ) y 0 # . Pro f t equals rectangle of quantity times (p - Av. Cost)
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Intepretation 2. Remember: f ( x )= f (0) + Z x 0 f 0 x ( s ) ds. Rewrite pro f tas p 0+ p Z y 0 0 1 dy ¸ c (0) + Z y 0 0 c 0 y ( y ) dy ¸ = = Z y 0 0 ³ p c 0 y ( y ) ´ dy c (0) . Producer surplus is area between price and marginal cost (minus f xed cost)
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2 Welfare: Consumer Surplus Nicholson, Ch. 5, pp. 165-169 (Ch. 5, pp. 145—149, 9th) Welfare e f ect of price change from p 0 to p 1 Proposed measure: e ( p 0 ,u ) e ( p 1 ,u ) Can rewrite expression above as
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101A_lec19 - Economics 101A(Lecture 19 Stefano DellaVigna...

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