Visayas State University Main Campus  Baybay City, Leyte
Econ 107
DEPARTMENT k

Spring 2015
Welfare measures
Economic
surplus
Benefit Cost analysis
Gini Coefficient
Economic surplus
Consumer
surplus
Producer surplus
Economic surplus
Note
that producer surplus flows
through to the owners of the
factors of production, and like
economic profit it i
Visayas State University Main Campus  Baybay City, Leyte
Econ 107
DEPARTMENT k

Spring 2015
Individual & Market Demand
APEC 3001
Summer 2007
Readings: Chapter 4 in Frank
1
Objectives
Deriving Individual Demand
Engel Curves
Income & Substitution Effects
Law of Demand & Violations
Complements & Substitutes
Derivation of Market Demand From Indivi
Visayas State University Main Campus  Baybay City, Leyte
Econ 107
DEPARTMENT k

Spring 2015
Slutsky Equation
Lectures in MicroeconomicsCharles W. Upton
The Slutsky Equation
These effects are
often summarized
in the Slutsky
equation
SLutsky Equation
The Slutsky Equation
SLutsky Equation
The Slutsky Equation
The substitution effect is the change
Visayas State University Main Campus  Baybay City, Leyte
Econ 107
DEPARTMENT k

Spring 2015
The Marshall, Hicks and
Slutsky Demand Curves
Graphical Derivation
We start with the following diagram:
y
In this part of the diagram we have drawn
the choice between x on the horizontal
axis and y on the vertical axis. Soon we
will draw an indifference c
Visayas State University Main Campus  Baybay City, Leyte
Econ 107
DEPARTMENT k

Spring 2015
Demand Curves
Graphical Derivation
We start with the following diagram
y
In this part of the diagram we have drawn
the choice between x on the horizontal
axis and y on the vertical axis. Soon we
will draw an indifference curve in here.
x
px
Down below we
Visayas State University Main Campus  Baybay City, Leyte
Econ 107
DEPARTMENT k

Spring 2015
DEADWEIGHT LOSS
DEADWEIGHT LOSS
Deadweight loss created by a binding
price ceiling. Producer surplus is necessarily
decreased, while consumer surplus may or
may not increase; however the decrease in
producer surplus must be greater than the
increase (if
Visayas State University Main Campus  Baybay City, Leyte
Econ 107
DEPARTMENT k

Spring 2015
GINI COEFFICIENT
GINI COEFFICIENT
The Gini coefficient is a
measure of statistical dispersion, commonly
used as a
measure of inequality of income distribution
or inequality of wealth distribution.
It is defined as a ratio with values between 0
and 1:
GI