econ111_lecture11 - Econ 111 Microeconomics Spring 2009...

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1 Econ 111 Microeconomics Spring 2009 Lecture 11 Chapter 9: The Analysis of Competitive Markets (1) Heiwai Tang
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2 Agenda Evaluating the gains and losses from government policies Consumer surplus Producer surplus Deadweight loss The concept of efficiency of a competitive market Price Controls and production Quotas Import Quotas and Tariffs
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3 Market Consumer Surplus The 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 In other words, consumer surplus measures the total “value” of what is consumed relative to what has to be paid.
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4 Market Producer Surplus 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. In other words, producer surplus measures the total net benefit to producers.
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5 Graphical representation of CS and PS Between 0 and Q 0 producers receive a net gain from selling each product-- producer surplus. Consumer Surplus Quantity Price S D Q 0 5 9 Between 0 and Q 0 consumers receives a net gain from buying the product-- consumer surplus. Producer Surplus Q D Q S
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6 Price Controls
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7 Analysis of a Price Ceiling When a government institutes a price ceiling, the price of a good can’t go above that price. With a binding price ceiling, producers and consumers are affected. How much they are affected can be determined by measuring changes in consumer and producer surplus.
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Analysis of a Price Ceiling (cont’) When price is held lower than the market equilibrium price, the quantity demanded increases and quantity supplied decreases. Some consumers are worse off because they can no longer buy the good. Lower consumer surplus Some consumers are better off because they can buy the good at a lower price. Increase in consumer surplus
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econ111_lecture11 - Econ 111 Microeconomics Spring 2009...

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