Lecture19 - Lecture 19 Supply, demand and efficiency Price...

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Lecture 19 Supply, demand and efficiency Price controls with competitive markets and when markets are not competitive: the case of the California Electricity Crisis
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Consumer and producer surplus We can analyze the economic impact of many policies by looking at changes in consumer and producer surplus. In a competitive industry, total surplus is maximized. quantity price Market price Market output Consumer surplus Producer surplus
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Price controls in a competitive industry Are the marginal consumers are the ones who are forced out of the market? quantity price Market price Price control Surplus transferred from producers to consumers Surplus lost shortage
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California Electricity Shortage In 1996 the electricity industry in California was “deregulated”: companies could enter the “generation sector” and sell to “distributors” in a wholesale electricity market. The distributors then sold electricity to households. An auction for wholesale power (electricity) was conducted hourly; distributors bid for purchases of power; generators bid for sales. The state had a few distributors (SCE and SDGE in the south, PG&E in the north)
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Lecture19 - Lecture 19 Supply, demand and efficiency Price...

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