gs_-11--MARKETS_AND_WELFARE - Correction Note: Please...

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1 12/18/2009 Econ 11-- Lecture #11 1 0 200 30 50 58 66 70 260 82 90 0 150 (3) Supply schedule (2) Demand schedule (1) Price per unit (pesos) Note: Please correct the data given in page I-167. The sentence in line 4, Question 1 should read: “The gaps in data can be filled by connecting the data points for demand and for supply, respectively, with a straight line.” All the exercises that follow will then be straight forward. Correction Lecture #11: MARKETS AND ECONOMIC WELFARE ± MARKET SOLUTION – PRICE & QUANTITY ± IDENTIFYING WHO “WINS” AND WHO “LOSES” – WHOSE WELFARE? ± ANALYSIS OF ECONOMIC WELFARE ± APPLICATIONS -- TAXATION 12/18/2009 Econ 11-- Lecture #11 3 MARKET EQUILIBRIUM ± IT SOLVES THE PRICE AND THE QUANTITY PROBLEMS GIVEN MARKET SUPPLY AND DEMAND. ± IT DOES NOT TELL US o WHO BENEFITS o WHO LOSES ± WELFARE ANALYSIS PROVIDES AN ANSWER.
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2 12/18/2009 Econ 11-- Lecture #11 4 The concept of ECONOMIC WELFARE (#1) ± Understanding who benefits or loses from the transaction requires analyzing the gains and losses of consumers and of producers. o CONSUMER’S SURPLUS o PRODUCER’S SURPLUS CONSUMER SURPLUS (Consumer Welfare) 12/18/2009 Econ 11-- Lecture #11 6 30 60 90 120 150 0 50 100 150 200 250 At price 150 pesos, there is no buyer. But as the price gets lower than 150 pesos, more and more buyers are willing to buy. At 120 pesos per unit, 50 units of the good are bought. Price Quantity Demand schedule a
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3 12/18/2009 Econ 11-- Lecture #11 7 30 60 90 120 150 0 50 100 150 200 250 Price Quantity Demand schedule a LET US EVALUATE THE CONSUMER SURPLUS at point a . 12/18/2009 Econ 11-- Lecture #11 8 CS1 30 60 90 120 150 0 50 100 150 200 250 We are interested in knowing the benefits that are derived by all the buyers – the CONSUMER. SURPLUS . Price Quantity Demand schedule a 12/18/2009 Econ 11-- Lecture #11 9 Calculating the Consumer Surplus: Rules in Geometry ¾ AREA OF A RECTANGLE = Height × Length ¾ The area of the consumer surplus (a right triangle
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This note was uploaded on 04/18/2010 for the course SE 67256 taught by Professor Dr.gerardosicat during the Spring '10 term at University of the Philippines Diliman.

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gs_-11--MARKETS_AND_WELFARE - Correction Note: Please...

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