251Ch5lecture3

251Ch5lecture3 - S D 3 4 6 6 4 2 3.50 Overproduction and...

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9/14/2011 1 1 Chapter 5: Efficiency and Equity Lecture 3: Deadweight loss Over- or Under-Production Producing too little is inefficient and producing too much is inefficient Dead Weight Loss Deadweight Loss (DWL) = Decrease in consumer and producer surplus from an inefficient level of production Deadweight Loss Graph Lost CS and PS from underproduction P 12 Q LOST CS= ½ (1)(2)= $1 LOST PS =1/2(1)(.5)= $0.25 $1.25 CS PS DWL : Lost CS+ Lost PS = $1.25
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Unformatted text preview: S D 3 4 6 6 4 2 3.50 Overproduction and DWL 9/14/2011 2 Deadweight Loss from overproduction P Q 12 S=MC D=MB 4.50 4 2 4 DWL=$1.25 5 6 Obstacles to efficiency 1. Price controls and quotas (chapter 6) 2. Taxes (chapter 6) 3. Lack of competition : Monopoly (chapter 11) , Monopolistic competition (chapter 12), Oligopoly (chapter 13) 4. Public goods (Chapter 14) 5. Externalities (Chapter 15) 6. High transactions costs...
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251Ch5lecture3 - S D 3 4 6 6 4 2 3.50 Overproduction and...

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