Wk2_23Aug_Ch2

# Wk2_23Aug_Ch2 - Week 2 (Tuesday, 8/23/2011) Complete...

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Week 2 (Tuesday, 8/23/2011) Complete Chapter 2 Thursday Begin Chapter 3 End of Chapter Problems: 5, 7, 9, 11

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Key Items from Last Week Autarky prices The region underneath a supply curve
Consumer Surplus Triangular area -- Price Net benefit after subtracting Po cost of Qo units

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Effect of Price Reduction Triangular area -- P consumer surplus -- Po area z expands Po’ area y by area z+y
Producer Surplus P S P Producer Surplus = a total revenue total cost = area a X

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Impact of Price Fall P S f g Loss of Producer P Surplus = (P-P’) Q’ + P’ ½ (P- P’)(Q-Q’)
The Home Market Numerical Example

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Effects of Price Reduction from \$2,000 to \$1,000 Change in Consumer Surplus = (Area t ) + (Area d) = [(\$2,000 - \$1,000) 40] + [1/2 (\$2,000 - \$1,000)(65 – 40)] = \$40,000 + \$12,500 = \$52,500 or \$52.5 million
Effects of Price Reduction from \$2,000 to \$1,000 Loss in Producer Surplus = (Area w ) + (Area v) = [(\$2,000 - \$1,000) 15] + [1/2 (\$2,000 - \$1,000)(40 – 15)] = \$15,000 + \$12,500 = \$27,500 or \$27.5 million

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Autarky Equilibrium
Two Different Countries AUTARKY (Before Trade) Price Price S S F P D D P F D F

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Derive Import Demand Curve Price 2000 .
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## This note was uploaded on 01/28/2012 for the course ECN 306 taught by Professor Croucher during the Fall '08 term at ASU.

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Wk2_23Aug_Ch2 - Week 2 (Tuesday, 8/23/2011) Complete...

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