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lecture 17 - PAM2000Lecture17 Agenda Welfare effects of...

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PAM 2000 Lecture 17 Agenda Welfare effects of taxes, entry controls, price controls General equilibrium: Edgeworth Box The contract curve The role of prices Welfare theorems
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Policies that create a wedge  between MB and MC Consider a sales tax A specific tax on producers will cause the supply curve to shift to the left The incidence of the tax depends on the elasticities of supply and demand
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Welfare Effects of a Specific Tax on Roses
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Effects of a Sales Tax Both producer surplus and consumer surplus will be lowered Deadweight loss exists since quantity is reduced Government will collect tax revenue of t*Q
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General Equilibrium and  Economic Welfare Here look at interactions between markets and consumers Examine just look at one market or one consumer: partial equilibrium analysis When we look at the interactions that is general equilibrium analysis
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Pareto Efficiency Pareto efficiency . (Recall notion of allocative efficiency: MB=MC, which is maximizing social welfare) An allocation of resources is Pareto efficient if no one can be made better off without someone else being made worse off That is, any reallocation would make at least one person worse off
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Interactions Between Consumers Consider interactions between consumers: Assume : There are only 2 consumers, Jane and Denise There are 2 goods, firewood and candy
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Interactions Between Consumers Each consumer is endowed
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