Chapter 9 The analysis of Competitive Markets

# Chapter 9 The analysis of Competitive Markets - = s...

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1 Chapter 9 The Analysis of Competitive Markets (Skim) Tuitional EBA Microeconomics P’ O Review of Consumer and Producer surplus • Consumer surplus – For some consumer the value of the good exceeds the market price. – CS is the total benefit or value that consumers receive beyond what they pay for the good. – CS is the area between the demand curve and the market price. Let’s see graph… • Producer surplus – PS is the difference between the market price the producer receives and the marginal cost of producing this unit. – PS is the area above the supply curve up to the market price. Let’s see graph… Change in CS and PS from Price controls Price Ceiling

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2 Change in CS and PS from Price controls Price minimum The Impact of a Tax or Subsidy • The burden of a tax (or the benefit of a subsidy) falls partly on the consumer and partly on the producer. • The effects of a specific Tax => a per unit tax => P b –P s = t • The effects of a Subsidy => as a negative tax => P s –P b
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Unformatted text preview: = s Comprehensive Problem • Ex1 : Suppose the market for widgets can be described by the following equations: Demand: P = 10 - Q Supply: P = Q - 4 a) What is the equilibrium P and Q? b) Suppose the government impose a tax of \$1 per unit. What will the new equilibrium Q be? What price will the buyer pay? What amount per unit will the seller receive? c) Suppose the tax is removed and a subsidy of \$1 per unit granted to widget producers. What will the equilibrium Q be? What price will the buyer pay? What amount per unit (including the subsidy) will the seller receive? What will be the total cost to the government? 3 • Ex 2 : Suppose the demand and supply of low-skilled labor is given by L S =10W L D = 80 – 10W a) What will be the free-market wage rate and employment level? Suppose the government sets a minimum wage of \$5 per hour. How many people would then be employed? Any question, contact me 089-136-3264 or [email protected]..
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## This note was uploaded on 10/13/2010 for the course ECON Mi22 taught by Professor Miko during the Spring '10 term at UC Riverside.

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Chapter 9 The analysis of Competitive Markets - = s...

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