{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Section_Notes_5_jenny

# Section_Notes_5_jenny - Section Notes Week 5 Outline Review...

This preview shows pages 1–3. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Section Notes: Week 5 Outline Review of Key Concepts Public Goods Clubs & Congestion These section notes follow Course Readings Chapter 7 and 7b. Review of Key Concepts Measuring Welfare Total social welfare is total social bene ts minus total social costs. These can generally be measured as the area underneath the marginal social bene t minus the area under the marginal social cost curves, at the quantity that is being produced in equilibrium. We can also think of total social welfare as the sum of the welfare of all individuals or groups in our model. This is essentially calculated in the same way as total social welfare. Table 1 shows relevant calculations for various groups in our models. Q * in this table refers to actual production at the equilibrium, not necessarily socially optimal production. Note that di erent groups can be taxed or subdized, which could change the tax below. Table 1: Measuring Total Social Welfare Group Bene ts Costs Producers Revenue = Q * p ´ Q * MPC ( q ) dq +tax Consumers ´ Q * MPB ( q ) dq + subs Amount Paid = Q * p Government Taxes ( tQ t ) Subsides ( sQ s ) Environment ´ Q * MEB ( q ) dq ´ Q * MEC ( q ) dq Total ´ Q * MSB ( q ) dq ´ Q * MSC ( q ) dq Deadweight Loss Deadweight loss is the di erence between actual total social welfare and total social welfare when the outcome is socially optimal (or at the pareto optimum). Always measure DW loss as TSW so- TSW actual . Taxes and Subsidies Taxes (or subsidies) can be calculated as the necessary increase in per unit costs or bene ts necessary to bring production to a level of Q SO , which is the socially optimal level of production and is known. Under perfect competition, monopoly, monopsony, and middleman equilibrium conditions must still be met. Table 2 shows equilibrium conditions with a tax for a negative externality. Try to think about who is taxed in each situation. Does it matter which group is taxed? Please note that taxes or subsidies generally cancel out in welfare calculations when the taxes are (properly) designed to address an externality: taxes are just a transfer between di erent parties. 1 Table 2: Taxes & Equilibrium Conditions Market Type Equilbrium Condition with Externality Tax Competition MB ( Q SO ) = MC ( Q SO ) + t Monopoly MR ( Q SO ) = MC ( Q SO ) + t Monopsony MB ( Q SO )- t = MO ( Q SO ) Middleman MR ( Q SO )...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern