Perloff_397614_IM_Ch09 - Chapter 9 Properties and...

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Chapter 9 Properties and Applications of the Competitive Model ± Chapter Outline 9.1 Zero Profit for Competitive Firms in the Long Run Zero Long-Run Profit with Free Entry Zero Long-Run Profit when Entry Is Limited The Need to Maximize Profit 9.2 Producer Welfare Measuring Producer Surplus Using a Supply Curve Using Producer Surplus 9.3 How Competition Maximizes Welfare Why Producing Less than the Competitive Output Lowers Welfare Why Producing More than the Competitive Output Lowers Welfare 9.4 Policies That Shift Supply Curves Restricting the Number of Firms Raising Entry and Exit Costs 9.5 Policies That Create a Wedge Between Supply and Demand Curves Welfare Effects of a Sales Tax Welfare Effects of a Price Floor Welfare Effects of a Price Ceiling 9.6 Comparing Both Types of Policies: Trade Free Trade Versus a Ban on Imports Free Trade Versus a Tariff Free Trade Versus a Quota Rent Seeking ± Teaching Tips The material in Chapter 9 represents a series of applications of the competitive model to government policies that alter the equilibrium and so also reduce overall welfare. Many of the concepts presented here, such as deadweight loss, are needed later in the course. Thus the time spent here will pay dividends later. The early sections of the chapter define consumer and producer surplus. From the consumer standpoint, you might want to emphasize the difference between the marginal utility, average utility, and total utility. Students should understand that statements such as I bought these ten candy bars for $1 each because that’s how much each is worth to me are incorrect. By spending the $10 on the candy, they reveal that the last candy bar is worth $1 to them; the previous units are worth more, and the difference is consumer surplus.
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118 Perloff • Microeconomics: Theory and Applications with Calculus While the concept of consumer surplus is straightforward because all students are consumers, you may need to spend a bit more time on the concept of producer surplus. The advantage here is the direct link between producer surplus and profit; the disadvantage is that they are not equal in the short run. It is important to cover the section on deadweight loss for two reasons. First, it drives home the point that competitive markets are efficient, and that any divergence from the competitive equilibrium results in some level of inefficiency. Second, looking ahead to monopoly, the introduction of deadweight loss due to prices above equilibrium levels will be important in future chapters. To ensure that these concepts are clear, you may want to walk the class through Figures 9.3 and 9.4. Students weak in geometry are likely to struggle with the graphs in this chapter, and may need extra help sorting out which areas are transferred from consumers to firms, which are part of deadweight loss, and which are not.
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Perloff_397614_IM_Ch09 - Chapter 9 Properties and...

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