gs_-12_--_Markets_and_Welfare

gs_-12_--_Markets_and_Welfare - Textbook Correction Note:...

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1 1/6/2010 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. Textbook Correction 1/6/2010 2 This correction is needed to enable the production of a chart similar to the one below. P Q 0 S D Lecture 12: ECONOMIC WELFARE AND MARKETS ± Review: Consumer & Producer Welfare ± Taxation -- Welfare analysis of commodity taxation ± How Trade Affects Welfare – Welfare analysis of Imports and Exports
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2 1/6/2010 4 0 Price Quantity Demand schedule CONSUMER AND PRODUCER SURPLUS ARE AT THEIR HIGHEST LEVEL AT MARKET EQUILIBRIUM. CS PS P 0 Q 0 Supply schedule 1/6/2010 5 THIS IS THE ALL IMPORTANT RESULT OF COMPETITIVE MARKETS! UNDER COMPETITION, THE GAINS OF CONSUMERS AND PRODUCERS ARE AT THEIR HIGHEST. SOCIETY BENEFITS WHEN COMPETITION IN MARKETS ARE FOSTERED. 1/6/2010 6 The market equilibrium of supply and demand yields consumer and producer surpluses for all market participants. The marginal seller and the marginal buyer transact at the equilibrium market price. At the market price, the marginal seller and marginal buyer cannot earn any surplus but all other sellers and buyers who participate in the market transactions do.
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3 LOCAL CONCEPT OF: SWAK’TO! = SWAK ITO! WALANG SOBRA, WALANG KULANG! TAMANG TAMA! The marginal BUYER and the marginal SELLER are SWAK’TO. ALL OTHER BUYERS AND SELLERS BEFORE THE MARGINAL ONES EARN CONSUMER & PRODUCER SURPLUS! 1/6/2010 8 EXAMPLES ± A tax per unit on a commodity ± Foreign trade – oExports oImports ± Government actions -- taxes and interventions in foreign trade ± Corruption in government and business ± Mafias and criminality 1/6/2010 9 Effects of a Tax on a Commodity – More analysis
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4 1/6/2010 10 P 0 Q 0 0 Price Quantity Demand schedule CS PS Supply schedule A TAX PER UNIT ON A COMMODITY S TAX Tax per unit Q TAX P TAX P S Total consumer loss of welfare 1/6/2010 11 P 0 Q 0 0 Price Quantity Demand schedule CS PS Supply schedule Total producer loss of welfare Tax per unit S TAX Q TAX P TAX P S 1/6/2010 12 P 0 Q 0 0 Price Quantity Demand schedule CS PS Supply schedule
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gs_-12_--_Markets_and_Welfare - Textbook Correction Note:...

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