06 Government Policies & Efficiency
2/17/11 11:58 PM
Is producer surplus profit?
•
From financial and accounting point of view, yes
•
In economics, we make a distinction for cost of production, we
included in there the opportunity cost for the producer’s time, so
we’re talking about economic profit, not just financial profit
o
Includes wages, time, other costs of production, implicit costs
Graph on slide 2
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Market equilibrium
o
P=$30
o
Q=15000
•
Up to the point of 15000 units, all the consumers are benefitting
from exchange because they are paying less than what they are
willing to pay (CS)
•
Up to that point, producers are also benefitting from producer
surplus
•
Total Surplus= CS+PS
o
Calculate the area of the triangle
•
Is the market efficient?- need to answer three questions
Which Buyers Consume the Good?
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In example
o
Every buyer whose WTP > 30 will buy, < 30 will not buy
•
So the buyers who value the good most highly are the ones who
consume it.
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- Fall '07
- Yezer
- Economics, Opportunity Cost, Producer Surplus, Supply And Demand, $20, $40, $35, $25, $30
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