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06 Government Policies

06 Government Policies - 06 Government Policies Efficiency...

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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 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? 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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