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Microeconomics I: Deadweight loss L12 13/11/17 :fire: (Deadweight loss…
Microeconomics I: Deadweight loss L12 13/11/17 :fire:
Deadweight loss
The gap between the willingness to pay and the marginal cost
While both the producer and the consumer can gain, it doesn't happen though
Vilfredo Pareto
Pareto Efficiency: an allocation where no alternative, technically feasible, allocation is possible in which at least one person would be better off, and nobody worse off
Pareto Improvement: a change that benefits at least one person without making anyone else worse off
Why
The producer would have to lower the price for every consumer -> it costs the price of its good to drop
How much to sell
What price to sell at
A differentiated product: the product which is not identical to any other product in the market e.g.iPhone
Monopoly
-> Too little output, too high the price
Product differentiation
Barriers to entry
economies of scale
ownership or control over key resources
ownership or control over outlets
legal restrictions (patents專利)
How great the loss is depends on the elasticity of demand
The more elastic (flatter) the price elasticity of demand is, the less the loss is
The more inelastic (steeper) the price elasticity of demand is, the greater the loss is
The monopoly is never gonna produce more than half of the demand quantity as the marginal revenue would become negative
Loss of surplus from all those trades that do not happen