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Surplus Regulations

Surplus Regulations - Minimum wage – price controls •...

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ECON 2106 Surplus and Government Regulations Consumer Surplus The value consumers get from a good but do not have to pay for We rarely observe consumer surplus but we do observe CHANGES in consumer surplus Producer Surplus The value that producers get from a good but do not have to pay for. **Total surplus is MAXIMIZED at the EQUILIBRIUM Price ceiling The maximum legal price that can be charged in a market Ceilings result in shortages. Ex- rent controls Price ceilings result in lost surplus o Interpreting lost surplus There are consumers that could have gotten consumer surplus There are producers that could have gotten consumer surplus Price Floor The minimum legal price that can be charged in market Price floors result in surpluses Ex- Milk price supports Price floors result in lost surplus
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Unformatted text preview: Minimum wage – price controls • Example of price floor Labor market lingo • Price = Wage • Supplier = People • Consumer = Firm • Surplus = Unemployment Transaction costs • Departure from the ideal supply and demand model • Role of the middleman o Middlemen reduce transaction cost o With the middleman The price that the seller gets is greater The price that the buyers pay is lower Total quantity is greater o Money is a middleman The value of money is in reduction of transaction cost • What is the alternative? o Barter – method of exchanging of goods or services directly without medium of exchange such as money Even economies with daily inflation of 10% did not give up money...
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