Chapter 9: Analysis of Competitive Markets
Chapter 9: Analysis of Competitive Markets ECO 420K
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This 2 page Class Notes was uploaded by Natalie Strawn on Saturday July 2, 2016. The Class Notes belongs to ECO 420K at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months taught by John Thompson in Summer 2016. Since its upload, it has received 14 views. For similar materials see MICROECONOMIC THEORY in Economcs at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months.
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Date Created: 07/02/16
June 21, 2016 Ch 9 – Analysis of Competitive Markets Welfare economics looks at gains and losses, usually from government policies. The tool we use is consumer surplus (CS) and producer surplus (PS). Buyer value (BV) is the most a consumer would be willing to pay. The demand curve shows marginal buyer value. If the buyer pays less than her buyer value, she receives some consumer surplus. Graphically, consumer surplus is the area beneath demand and above price for any unit that gets sold. Seller cost (SC) is the least a producer would be willing to accept. Supply curve shows the marginal seller cost. If the seller receives more than his seller cost, he receives some producer surplus, or marginal profit. Graphically, producer surplus is the area above supply and below price for any unit that gets sold. Total surplus (TS) is the total gain to everyone (all buyers, sellers, and third parties). Total surplus is the area below demand and above supply for any unit that gets sold. (Figure 9.1) Welfare economics -Competitive markets maximize total surplus among buyers and sellers. -A dead weight loss is a loss to society. Economics generally favor competitive markets. Antitrust policy explicitly recognizes the efficiency of competitive markets. Effective price controls alter welfare gains in markets. (Figure 9.2) Price ceiling – price set to go below equilibrium price Price floor – minimum price Will one party always gain from an effective price control? -No, it depends on the amount of deadweight loss (Figure 9.3) Taxes also alter welfare gains in markets. (Figure 9.17)
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