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APPLYING THE COMPETITIVE MODEL
The problems in this chapter are intended to illustrate the types of calculations made using
simple competitive models for applied welfare analysis. Usually the problems start from a
supplydemand framework much like that used for the problems in Chapter 10.
Students are
then asked to evaluate the effects of changing equilibria on the welfare of market participants.
Notice that, throughout the problems, consumer surplus is measured as the area below the
Marshallian
(uncompensated) demand curve.
Comments on Problems
11.1
Illustrates some simple consumer and producer surplus calculations.
Results of this
problem are used later to examine price controls (Problem 11.4) and tax incidence
(Problem 11.5).
11.2
This problem illustrates the computations of shortrun produce surplus in a simple linear
case.
11.3
An increasing cost example that illustrates longrun producer surplus.
Notice that both
producer surplus and rent calculations must be made incrementally so that total values
will addup properly.
11.4
A continuation of Problem 11.1 that examines the welfare consequences of price controls.
11.5
Another continuation of Problem 11.1 that examines tax incidence with a variety of
different demand and supply curves.
The solutions also provide an elasticity
interpretation of this problem.
11.6
A continuation of Problem 11.2 that looks at the effects of taxation on shortrun producer
surplus.
11.7
A continuation of Problem 11.3 that examines tax incidence, longrun producer surplus,
and changes in input rents.
11.8
Provides some simple computations of the deadweight losses involved with tariffs.
11.9
A continuation of Problem 11.8 that examines marginal excess burden.
Notice that the
increase in the tariff rate actually reduces tariff revenue in this problem.
11.10
A graphical analysis for the case of a country that faces a positively sloped supply curve
for imports.
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 Spring '09
 Smith

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