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Microeconomics - Chapter 5: Market efficiency and Government Policy, Total…

- - - - Sum of consumer surplus and producer surplus is -->
    - - The maximum amount that a buyer is willing & able to pay
      - Measure how much the buyer values the good or service
      - The market demand curve represents the willingness to pay of buyers in the market in descending order
        
        Usually the demand decreases as price increases.
        
        Downward slope
        
        To find Cs of a buyer find the area under the curve (under demand, above price)
        
        Total Cs = Cs1 + Cs2 + ...
        
        Consumer surplus increases as the price decreases
        
        If price decreases --> Cs increases
    - - Usually the price
      - Cs = Wp - Amount payed (P)
        
        Measures the benefit the buyer receives from the good as they perceive it (individual POV)
  - - - Measures benefit (profit)
        
        Profit = Revenue (P) - Costs
    - - As price increases --> Supple increases
        
        Upward Slope
      - Ps is measured by area above curve, under price
        
        Total Ps = Ps1 + Ps2 + ...
      - Producer Surplus increases as the price increases
        
        Price increases --> Ps increase
- - - - If there is market power, then the buyer or sellers are price makers and not price takers.
      - The ability to influence price
        
        Created when the market is not perfectly competitive
      - Could cause markets to be inefficient because it keeps price and quantity away from equilibrium
    - - Created when the market outcome affects individuals other than buyers & sellers
      - Cause welfare in a market to depends on more than just the value to buyers & cost to sellers.
      - When buyers & sellers do not take into account the effect of their interactions on others (externalities) as they decide how much h to consume and produce, can cause ineffciciency
  - - - Price controls
        
        Used when policy makers believe market price is unfair to buyers or sellers.
        
        Price ceiling
        
        Highest price which a good can legally be sold
        
        2 outcome when imposed
        
        Price ceiling is not binding if set above the equilibrium price
        
        Most cases are not binding
        
        Price ceiling is binding when set below the equilibrium price, leading to shortage
        
        Usually placed to prevent abusive behaviors from sellers
        
        Price Floor
        
        Lowest price which a good can legally be sold
        
        Two outcomes is possible when imposed
        
        Price floor is not binding if set below equilibrium
        
        Most cases are not binding, placed to prevent abusive behaviors due to buyers
        
        Price floor is binding if set above equilibrium, leading to surplus.
      - Tax
        
        Why do government collect tax?
        
        To raise revenue for public projects & services.
        
        Tax Revenue
        
        Government Tax Revenue = T x Q, T means size of tax, while Q means quantity of the good sold
        
        Tax R = T x Q
        
        Tax incidenese
        
        Study if how the burden if a tax is shared among participants in the market.
        
        The study of who bears the burden of a tax.
        
        Depends on the elasticity of demand and the elasticity of supply
        
        Supple is more elastic than demand, tax falls more on consumers
        
        Burden of tax falls on the side of market that is less elastic
        
        Demand is more elastic than supply, tax falls more on producers
        
        Effect of tax on market participient
        
        Tax on Buyers
        
        Shifts the demand curve downward by size of tax
        
        On all participients
        
        A tax places a wedge b/w the price the buyers pay, and seller receive.
        
        2 more items...
        
        Tax on sellers
        
        Shifts supply curve upward by size of tax
- - - - or
        
        Ts = Value to buyer - Cost
- - - - Positive and increase total surplus
    - - Negative and decrease total surplus
- - - - Ts = TCs + TPs