Chapter 4 - Consumer surplus, producer surplus, and economic efficiency. After completing this unit, you should be able to: Describe consumer surplus, producer surplus, economic surplus, and deadweight loss; illustrate and compute consumer surplus, producer surplus, and deadweight loss; describe how economic surplus can represent social welfare and economic efficiency.
Trang 1Introduction to Economics: Social Issues and Economic Thinking
Wendy A Stock
PowerPoint Prepared by
Z Pan
Chapter 4
Consumer Surplus, Producer
Surplus, and Economic
Efficiency
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Trang 2Ø Describe consumer surplus,
producer surplus, economic
surplus, and deadweight loss
consumer surplus, producer
surplus, and deadweight loss
surplus can represent social
welfare and economic
efficiency
interventions on economic surplus and social welfare
and are hurt by market interventions
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After studying this chapter, you should be
able to:
Trang 3Ø Consumer Surplus is the difference between
what someone is willing to pay for a good or
service and the price of the good or service It is the net benefit buyers get from buying a good or service
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CONSUMER SURPLUS
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CONSUMER SURPLUS
Trang 5Ø Producer Surplus is the difference between the price at which a seller is willing and able to sell a given good and the actual price received for the good It is the net benefit sellers get from selling
a good or service
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Producer surplus
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Producer surplus
Trang 7Ø Economic Surplus is the sum of consumer
surplus plus producer surplus
ES = CS + PS
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Economic Surplus
Trang 8Ø ES = CS + PS
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Economic Surplus
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Disequilibrium and inefficiency
Deadweight Loss: the loss in economic surplus that results from
disequilibrium market outcomes.
Trang 10Ø Price Ceiling: An upper limit on the price of a good or service A price ceiling sets the
maximum amount that can be charged for a
good or service
Ø Examples: rent controls, electricity, natural gas and executive pay caps
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Price Ceilings
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Impact of a Price Ceiling
Trang 12Ø Price Floor: A lower limit on the price of a good
or service It sets the minimum amount that can
be charged for a good or service
Ø Examples: minimum wage, some agricultural
products
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Price Floors
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Impact of a Price floor
Trang 14Ø Quota - A limit on the quantity of a good that
can be sold
Ø Examples: import quota, sugar beets, tobacco leaf, cotton
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quotas
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Impact of a quota
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buyers to enter a beginning bid on an item and then automatically increment their
bids upward to some maximum bid level
Sellers are allowed to enter a minimum price that they will accept for their items, called a reserve price, below which the item will not be sold Use the concepts of producer and consumer surplus to explain why this setup is attractive to buyers and sellers.
reveal the seller’s reserve price or the buyer’s maximum bid to other users?
Trang 17• Consumer surplus
• Price ceiling
• Price floor
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Key Concepts