Unformatted text preview: ricultural Price Support
P Net effect on consumer and Increased Producer Surplus Government purchase producer surplus Supply Psupport P* Lost consumer surplus Deadweight Loss (if Deadweight Loss (if the govt purchase is the govt purchase is distributed to the not distributed to the public) public) Demand Taxes Raised Qd Q* Qs Q 2/9/2009 Class 9 4 Price ceiling: Rent Control Rent control takes various forms Simple case ceiling imposed on prices To charge higher rents is illegal Rent control is supposed to be a benefit to renters Is it? 2/9/2009 Class 9 5 Rent Control
$/apartment Underestimate of Lost consumer surplus Deadweight loss P P* P Supply Price Ceiling Lost Increased producer consumer surplus surplus Price Ceiling Demand Q Q*
Class 9 # of Apartments
6 2/9/2009 Price Distortions: Taxes and Subsidies We know: We have seen: How to predict competitive market prices Competitive markets in equilibrium generate efficient allocations of resources Inefficiency generated by price controls Now we investigate the effects of taxation in the market Prices are allowed to adjust Market finds equilibrium (Supply = Demand) But taxes/subsidies change incentives, and so distort market allocations away from the efficient...
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