Please enable JavaScript.
Coggle requires JavaScript to display documents.
CHAPTER NINE- THE ANALYSIS OF COMPETITIVE MARKETS - Coggle Diagram
CHAPTER NINE- THE ANALYSIS OF COMPETITIVE MARKETS
Consumer and Producer Surplus
Consumer Surplus
measures total benefit to all consumers
Producer surplus
measures total profits of producers
benefit for selling at market price
CS + PS measures welfare benefit of competitive market
Pmax is below market clearing
gain to consumers= A-B
loss to producers= A+C
deadweight loss = B+C
price control with inelastic demand = consumers suffer netloss
efficiency of a competitive market
economic efficiency
maximization of consumer and producer surplus
market failure
market is inefficient- prices dont show signals to consumers and producers
occurs :
externality
action taken by producer/consumer which affects all- not accounted for by the market price
lack of information
consumers lack info about quality/nature of product- can't make utility-maximizing purchasing decisions- gov intervention may be required
When price is greater than market clearing price there will be deadweight loss- producers will produce less than necessary(Q0) - more deadweight loss
Import quotas and tariffs
import quota
- limit on quantity imported
tariff
- tax on imported good
T = P* − Pw.
if tarrif is used- gov gains revenue from tarrif
if quota is used- revenue becomes part of foreign producer profit
the impact of a tax subsidy
specific tax
tax of a certain amount of money per unit sold
demand very inelastic relative to supply
burden mostly on buyers
demand very elastic relative to supply
falls mostly on sellers
subsidy
payment- reduces buyers price below sellers prices
negative tax
benefit split between buyers and sellers
