Chapter 4 Notes

Chapter 4 Notes - :7; a Consumer Surgiu —Measures the...

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Unformatted text preview: :7; a Consumer Surgiu —Measures the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. 0 Willing to pay $80 for Macroeconomics textbook, but find it online for $40 => a consumer surpius of $40. I The demand curve can be used to measure the total consumer surplus in a market. Demand curves show the willingness of consumers to purchase a product at different prices. Marginal Benefit— The additional benefit to a consumer from consuming one more unit of a good or service. Consumers are willing to purchase a product up to the point where the marginal benefit of consuming a product is equal to its price. 0 The total amount of consumer surpius in a market is equal to the area below the demand curve and above the market price. This area represents the benefit to O \N4‘: sumers in excess of the price they paid for a product. filiarcrfl.§j 5.3;} 0 Producer Surglu —- The difference between the iowest price a firm would have been willing to accept and the price it actually receives. 0 Wiiling to sell a macroeconomics textbook for $20, but receive $40 => a producer surplus of $20. 9 Supply curves show the willingness of firms to supply a product at different prices. 8 Marginai Cos «— The additional cost to a firm of producing one more unit of a good or service. 0 Often, the marginal cost of producing a good increases as more of the good is produced during a given time period. 0 The total amount of producer surpius in a market is equal to the area above the market supply curve and below the market price. I WJLE mexr‘r‘ek l 530 ‘3 {$15334 0‘ 0 first: 89 “O i3 :2 1,,0 es? :2 r J: *3 0 23.5: in “W3 q («Tc rm. i 5;” ‘ i :3, a“) :3 L‘s-EU :2 f. .1 m an ° emmsowegaeeesemsrePage?asreemseieeesfiresmeronaesearste minus the total amount they must pay to buy the good. 0 Producer surplus measures the net benefit received by producers from participating in a market. Producer surplus in a market is equal to the total amount firms receive from consumers minus the cost of producing the good. fifi33l%%t€5i§§6?%rl5§§ijééc 's‘laas 'éfii l"filla'i‘fl"r£?all .333 icigll rosutcomes. 0 When marginal benefit equals marginal cost the market is said to be efficient. o Marginal Benefit Equais Marginal Cost in Competitive Equilibrium. 9 Given Demand and Suppiy, competitive markets feed to the maximum levei of economic surplus. 0 Economic Surplu —Producer Surplus + Consumer Surplus 0‘ M9- Or“ ecahewag: emery $ - Deadweight Loss— The reduction in economic surplus resulting from a market not being in competitive equilibrium, or inefficient. 0 When the price of a good is above its equilibrium price, economic surplus is less than it would be at the equilibrium price. 0 What if price is below the equilibrium price? “h :3": o E1? 5; <=- 13pr L in; m we ‘9 - Price Floor—«Government controlled price that sets the minimum price that can be charged for a aural-Imba- (flood OT fixer»; 0 Not effective if set below the equilibrium price level. 0 Inefficient. o Leads to a gain in producer surplus at the expense of consumer surplus. I Lowers economic surplus. I The gain in producer surplus is lower than the loss of consumer surplus. Mallmm} 9’5‘4‘3‘3493“; i 5’15}. «Wow comes/g)» .1; - . 2 a? m aim” : L-LW‘» 'x‘vn-J :- 0 An exampie wouid be Louisiana "Shrimpers” gathering on the steps of the Capitol in favor of a price floor that would drive up the price of shrimp, thereby Feeding to a greater producer surplus (at the expense of consumers). I Minimum wage is another example of a price floor. 0 Price Ceilingm-a-ggxecrnment controlied price that sets the maximum price that can be charged {nr a «AAA nr nura _ . . . . 0 Not effective If set above ethbnum price. 0 inefficient. o Leads to a gain in consumer surplus at the expense of producer surplus. ' Lowers economic surpius. I The gain in consumer surpius is iower than the loss of producer surplus. 0 Very rare. Nfflr'mw‘o; Qre‘ajgml'fis' é‘mm virgins-g ‘ V n: 3' 3 ; V as gigging?“ r ~ 3:! ?»m Cesm‘g ¥>r€vemg P 4: a; “i”- . . é - " ' "‘t :_a,.)r: ithx ‘ \EI-gcgfifii’g'i .1». ll u f: 55.133" mi: ; t y . rat- ‘5 3 fi,',‘- ‘1 “Law :7 . L6G _ .-,» L. (3%.; {Pa LAC":- o For exampEe, rent controls in NYC set the maximum price iandiords can charge on apartments (this is the mix; exampie that i have ever seen of a price ceiiing}. ' Another exampie may be the prevention of “price gouging” after a hurricane or other naturaf dEsaster. ° whee a Egemsaatansse éaas'egeswee Essagééneateeddggasrgigfitwgéeweseefrom a tax. 0 The deadweight 1055 from a tax is referred to as the excess burden of the tax. aka/{35 1) kg; gififirécifij‘ 4\‘ W2 :3236H‘wrgwd- :3?» EI\Qa-rr=s”a~?mdgefaxfiafi fiifliiig (cw pg)- Ag ‘3‘- ‘ E i’ A m “1 r Cfim' W‘mfije‘mflg "7 i) \wAS-ér ray‘suiuww . Tax lncidence— The actuat division of the burden of the tax between buyers and seilers in a market. 0 The incidence of a tax does not depend on whether a tax is coilected from the buyers of a good or from the seilers. o Depends on the relative elasticity of Suppiy and Demand. 0 If Supin has a greater efasticity than demand, then consumers wiil pay the majority of the tax. 0 if Demand is more eiastic than suppiy, then producers will pay the majority of the tax \q \€93€\( 1 3 ' I . . z r 3‘ 'r » ’94; ‘ f ' I I . «,gfl’g {bi '33 955:5: gajg {’3 it??? fly fir ’ :y’ 0 . - w - - 2 .n L J" U U» ‘1’; i .- E} 521:3? K. 24m ‘. tf‘ ' ' #23:; I ‘ A" z . i ' r. - ‘ I 9% m, mgagek H; L} flag! tiff; +0! ‘9 “‘03??th by ' 9 Area of a Right Triangie= % x base x height = % bh Area of a Rectangle = length x width = Iw ASL? swiw . Q SULOQ ii i” ...
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This note was uploaded on 02/21/2011 for the course ECON 2010 taught by Professor Roussel during the Spring '08 term at LSU.

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Chapter 4 Notes - :7; a Consumer Surgiu —Measures the...

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