Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.
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Price Ceiling P A B E C F Q D S D Qd P1 P Q Qs P0
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Transcript of Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.
Price Ceiling
P
A
B
E
C
F
Q
D
S
D
Qd
P1
P
QQs
P0
Welfare ComputationBefore Ceiling After Ceiling
Consumers’ surplus
A+B+C A
Social Gain A+B+C+D+E+F A+F
Deadweight Loss
_ B+C+D+E
Producers’ surplus
D+E+F F
A Hurricane and the Price of Gas
P
Q
D
S
Q2
P1P0+ cost in time
Q0
P0
S’
Q1
A Hurricane and the Price of Gas
P
Q
D
S
P1=P0+cost in time
Q0
P0
S’
Q1
Cost of Robbery
$ per robbery
Quantity (robberies)
Social Marginal Cost
R$
B
A
Q
Robber’s surplus
B
Loss to Victim
A+B
Social Loss
A
Water-Diamond ParadoxValue Vs Price
Q Q
PP
Pd
Pw
Effect of Trade on Welfare
• Should the government impose restrictions to commerce (imports and/or exports)?
• Who would win and who would lose?
• Would the gains exceed the looses?
Opening the economy in an exporting country
P
QQd Qs
PW
P
Q
Consumer’s Surplus
D
Producer’s Surplus
S
Exports
Consumers’s are worse off
Producer’s are better off
Social Gain is positive
Small Country Assumption
Opening the economy in an importing country
P
Q QdQs
PW
P
Q
Consumer’s Surplus
D
Producer’s Surplus
S
Imports
Consumers’s are better off
Producer’s are worse off
Social Gain is positive
Tariff on imported cameras when there exists a domestic industry
Small Country Assumption
P
A
B
EC F
Q
D
S
D
P0+$500
Qo Q1
P0G
Q’o Q’1
Producer’s Surplus
G G+C
Consumers’s Surplus
A+B+C+D+E+F
A+B
Revenue - E
Deadweight Loss
- D+F
Import Quota (limit on quantity of imports)
P
A
B
EC G
Q
D
Domestic Supply
D
Price after quota
Qo Q1
World priceH
Q’o Q’1
Domestic Supply +Imports
F
quota
Producer’s Surplus
H H+C
Consumers’s Surplus
A+B+C+D+E+F+G
A+B
License Holder Surplus
- E+F
Deadweight Loss
- D+Gquota
Effect of Trade on Welfare
• Should the government impose restrictions to commerce (imports and/or exports)?
• Who would win and who would lose?
• Would the gains exceed the looses?
Tariff on Imported CamerasSmall Country Assumption-no domestic industry
P
A
BC
Q
D
P0+$500
Qo
P0
Q1
S’
S
Consumers’s Surplus A+B+C A
Revenue - B
Social Gain A+B+C A+B
Tariff on Imported CamerasBig Country-no domestic industry
P
A
B
EC
F
Q
D
S
DP1
QoQ1
P0
S’
Consumers’s Surplus
A+B+C+D A
Revenue - B+C+E+F
Social Gain A+B+C+D A+B+C+E+F
E+F< or > D
International Supply
