Econ1-Fall2010-07C-Efficiency-handout

Econ1-Fall2010-07C-Efficiency-handout - Subsidies hen the...

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Economics 1 rinciples of Microeconomics Principles of Microeconomics Fall 2010 Herb Newhouse 1 eadings Readings h 6: Efficiency and Exchange (p 83 85 Ch. 6: Efficiency and Exchange (p. 183 185, 194 – 196) rice Subsidies Price Subsidies Taxes, Elasticity and Efficiency xes External Costs and Efficiency Taxes, External Costs and Efficiency 2 utline Outline elative deadweight loss in different markets Relative deadweight loss in different markets. Subsidies. 3 it etter x Some Goods an thers Is it Better to Tax Some Goods than Others? P P S S D D Q Q Elastic Curves Inelastic Curves 4
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it Better to Tax Some Goods than Others? Is it Better to Tax Some Goods than Others? general, the deadweight loss associated In general, the deadweight loss associated with a tax will be lower, the lower are the good’s price elasticity of supply and price elasticity of demand. From an efficiency standpoint, governments should tax goods with a low price elasticity of pply or demand supply or demand. quity? Equity? 5 bsidies
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Unformatted text preview: Subsidies hen the government offers a subsidy it pays When the government offers a subsidy it pays for exchange in a market. Well look at just look at per unit subsidies. s the opposite of per nit taxes It s the opposite of per unit taxes. The price received by sellers is greater than the rice paid by buyers. price paid by buyers. Examples: Green energy Ethanol, Solar, etc. p gy , , 6 Per nit Subsidy A Per Unit Subsidy P S D Q 7 he Bottom Line The Bottom Line Intervention in markets often leads to DWL and unintended consequences. ut recall unregulated markets are only efficient But, recall unregulated markets are only efficient when Buyers and sellers are well informed. Markets are perfectly competitive The supply curve captures all of the costs (and enefits) to production benefits) to production. The demand curve captures all of the benefits (and costs) to consumption. 8...
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This note was uploaded on 06/12/2011 for the course CS 1 taught by Professor Staff during the Fall '08 term at Cornell University (Engineering School).

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Econ1-Fall2010-07C-Efficiency-handout - Subsidies hen the...

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