Please enable JavaScript.

Coggle requires JavaScript to display documents.

markets and welfare ((Concepts in welfare economics (Consumer surplus…

- - - - is the amount a seller is paid minus the cost of production.
        Is a measure of benefits to sellers from participating in a market
      - Producer surplus is the area above the supply curve and below the market price
        
        A lower market price will reduce producer surplus.
        A higher market price will increase producer surplus.
        
        picture
    - - is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
      - measures the benefit to the buyer from participating in a market
      - Consumer surplus is the area below the demand curve and above the market price
        
        A lower market price will increase consumer surplus.
        A higher market price will reduce consumer surplus.
        
        picture
    - - is the study of how the allocation of resources affects economic wellbeing
    - - is the maximum amount that a buyer will pay for a good.
        is illustrated by the market demand
    - - is the value of everything a seller must give up to produce a good
        Is illustrated by the supply curve
    - - One possible measure of the economic wellbeing of a society is
        Total surplus = consumer surplus + producer surplus
        
        Consumer surplus = Value to buyers – Amount paid by buyers
        
        Producer surplus = Amount received by sellers – Costs of sellers
        
        Total surplus = Value to buyers – Costs of sellers
      - If an allocation of resources maximises total surplus, we say that the allocation exhibits efficiency.
      - Total surplus in free market equilibrium
        
        picture
        
        In equilibrium, consumer surplus is the area below the demand curve and above the equilibrium price.
        
        Producer surplus is the area below the equilibrium price and above the supply curve.
        
        Total surplus is the sum of these two areas.
  - - - Trade with other countries destroys domestic jobs
      - Economists’ response
        
        Free trade creates jobs at the same time that it destroys them.
        
        Workers move from the importing industries to those industries in which a country has a comparative advantage.
        
        The transition may impose hardship on some workers initially; in the long term, the country as a whole can enjoy a higher standard of living.
    - - Argument: A country should protect industries that are vital for national security.
      - Economists’ response
        
        Protecting key industries may be appropriate when there are legitimate concerns over national security.
        
        However, producers may exaggerate their role in national defence in order to obtain protection from foreign competition at consumers’ expense.
    - - Argument:New industries need temporary trade restrictions to help them get started
      - Economists’ response:
        
        To apply protection successfully, the government would need to ‘pick winners’.
        
        If an industry will be profitable in the future, the owners of the firms should be willing to incur temporary losses in order to obtain the eventual profits.
    - - Argument:If firms in different countries are subject to different laws and regulations, then it is unfair to expect the firms to compete in the international marketplace
      - Economists’ response:
        
        Even if production in another country is subsidised, it is still the case that the gains to consumers from buying at a low price exceed the losses of domestic producers.
        
        Rather than objecting to foreign subsidies, we should thank foreign taxpayers for subsidising our consumption
    - - Argument:
        The threat of trade restrictions can be useful when we bargain with our trading partners
      - Economists’ response
        
        The threat may not work.
        
        If it doesn’t work, the country has a difficult choice.
        
        It can carry out its threat and implement the trade restriction, which would reduce its own economic welfare
        
        Or it can back down from its threat, which would cause it to lose credibility
  - - - Opening an economy to international trade
        
        When an economy is opened to international trade, buyers and sellers participate in the world markets.
        
        In a small open economy, the actions of buyers and sellers have a negligible effect on world markets.
        
        Domestic buyers and sellers are said to be price takers in the world economy
      - Exporting to the world market
        
        If the world price > the domestic price
        
        Sellers sell to the world market
        
        the country has comparative advantage in this good will be an exporter of it
        
        The domestic price rises to the world price
        
        Gains and losses export
        
        The increase in the domestic price reduces consumer surplus and increases producer surplus.
        
        Area B is surplus that is transferred from consumers to producers when the price rises to the world price
        
        Area D is the gains from (international) trade.
      - Importing from the world market
        
        If the world price < the domestic price
        
        Buyers buy from the world market
        
        the country has no comparative advantage in this good will be an importer of it
        
        The domestic price falls to the world price
        
        Gains and losses import
        
        The fall in the domestic price increases consumer surplus and decreases producer surplus
        
        Area B is surplus that is transferred from producers to consumers when the price falls to the world price
        
        Area D is the gains from (international) trade.
      - Winners and losers from international trade
        
        When a country exports a good
        
        domestic producers of the good are better off and domestic consumers of the good are worse off
        
        When a country imports a good
        
        domestic consumers of the good are better off and domestic producers of the good are worse off
        
        In each case, the gains of the winners exceed the losses of the losers.
        
        In this sense, free trade raises the economic wellbeing of a nation as whole
    - - definition
        
        A tariff is a tax on goods produced abroad and sold domestically.
        Tariffs raise the price of imported goods above the world price by the amount of the tariff.
        
        tarrif
        
        table
    - - A limit on the quantity of imports
      - With import quota
        
        picture / table
        
        total supply in the domestic market is equal to domestic supply plus the quota.
        
        In equilibrium, the domestic price equates total supply with domestic demand.
        
        DWL from an import quota is identical to that from a tariff.
  - - - table
    - - Form government revenue
        
        Lower consumer’s surplus
        
        Lower producer’s surplus
        
        Result in a deadweight loss (DWL)无谓损失
        
        Deadweight loss is the reduction in total surplus that results from a market distortion such as a tax or a monopoly price.
        
        Determinants of the DWL of taxation
        
        The size of the deadweight loss depends on
        
        how much the quantities supplied and demanded respond to the tax levy
        
        That, in turn, depends on
        
        the price elasticities of supply and demand.
        
        2 more items...
        
        the tax rate
        
        4 more items...
  - - - picture
        
        allocates the supply of goods to the buyers who value them most highly
        
        allocates the demand for goods to the sellers who can produce them at lowest cost
        
        produces the quantity of goods that maximises the sum of consumer and producer surplus.
  - - - DWL of subsidy
        
        table