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Unformatted text preview: 2. Consumer surplus falls to 0; it falls by A. 3. When the government gives the goods away for free, price is 0 and consumer surplus will rise to A + B + C + D + E. Producer surplus will still be D – C. Government expenditure will be D + E. Total surplus (including the governments expenditure) will be A + B + D. That’s the same surplus as in the competitive case so there will be no deadweight loss. (Note that if you don’t consider the government’s loss, total surplus would be A + B + 2D + E.) A B C D Q P 1 P D S P Q E...
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This note was uploaded on 12/02/2009 for the course ECON econ taught by Professor For got during the Spring '09 term at UCSD.
- Spring '09
- for got