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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 supply-demand 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 short-run produce surplus in a simple linear case. 11.3 An increasing cost example that illustrates long-run producer surplus. Notice that both producer surplus and rent calculations must be made incrementally so that total values will add-up 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 short-run producer surplus. 11.7 A continuation of Problem 11.3 that examines tax incidence, long-run 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. 51
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This note was uploaded on 11/06/2009 for the course ECON ECON111 taught by Professor Smith during the Spring '09 term at Punjab Engineering College.

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