ofCompetitiveMarkets(微观经济学-华侨大学,Jeff.pptx
Chapter 9The Analysis of Competitive Markets1Chapter 1Topics to be DiscussednEvaluating the Gains and Losses from Government Policies-Consumer and Producer SurplusnThe Efficiency of a Competitive MarketnMinimum Prices2Chapter 1Topics to be DiscussednPrice Supports and Production QuotasnImport Quotas and TariffsnThe Impact of a Tax or Subsidy3Chapter 1Evaluating the Gains and Losses fromGovernment Policies-Consumer and Producer SurplusnReviewlConsumer surplus is the total benefit or value that consumers receive beyond what they pay for the good.lProducer surplus is the total benefit or revenue that producers receive beyond what it cost to produce a good.4Chapter 1ProducerSurplusBetween 0 and Q0 producers receive a net gain from selling each product-producer surplus.ConsumerSurplusConsumer and Producer SurplusQuantity0PriceSD5Q0Consumer C107Consumer BConsumer ABetween 0 and Q0 consumers A and Breceive a net gain from buying the product-consumer surplus5Chapter 1nTo determine the welfare effect of a governmental policy we can measure the gain or loss in consumer and producer surplus.nWelfare EffectslGains and losses caused by government intervention in the market.Evaluating the Gains and Losses fromGovernment Policies-Consumer and Producer Surplus6Chapter 1The loss to producers isthe sum of rectangleA and triangle C. TriangleB and C together measurethe deadweight loss.BACThe gain to consumers isthe difference betweenthe rectangle A and thetriangle B.Deadweight LossChange in Consumer andProducer Surplus from Price ControlsQuantityPriceSDP0Q0PmaxQ1Q2Suppose the governmentimposes a price ceiling Pmaxwhich is below the market-clearing price P0.7Chapter 1nObservations:lThe total loss is equal to area B + C.lThe total change in surplus = (A - B) + (-A - C) = -B - ClThe deadweight loss is the inefficiency of the price controls or the loss of the producer surplus exceeds the gain from consumer surplus.Change in Consumer andProducer Surplus from Price Controls8Chapter 1nObservationlConsumers can experience a net loss in consumer surplus when the demand is sufficiently inelasticChange in Consumer andProducer Surplus from Price Controls9Chapter 1BAPmaxCQ1If demand is sufficientlyinelastic, triangle B can be larger than rectangleA and the consumer suffers a net loss fromprice controls.ExampleOil price controlsand gasoline shortagesin 1979SDEffect of Price ControlsWhen Demand Is InelasticQuantityPriceP0Q210Chapter 1Price Controls and Natural Gas Shortagesn1975 Price controls created a shortage of natural gas.nWhat was the deadweight loss?11Chapter 1nSupply: QS = 14 + 2PG + 0.25POlQuantity supplied in trillion cubic feet (Tcf)nDemand: QD = -5PG + 3.75POlQuantity demanded (Tcf)nPG = price of natural gas in $/mcf and PO = price of oil in $/b.Price Controls and Natural Gas ShortagesData for 197512Chapter 1nPO = $8/bnEquilibrium PG = $2/mcf and Q = 20 TcfnPrice ceiling set at $1nThis information can be seen graphically:Price Controls and Natural Gas ShortagesData for 197513Chapter 1BA2.40CThe gain to consumers is rectangle A minus triangleB, and the loss to producers is rectangleA plus triangle C.SD2.00Quantity (Tcf)0Price($/mcf)5101520253018(Pmax)1.00Price Controls and Natural Gas Shortages14Chapter 1nMeasuring the Impact of Price Controlsl1 Tcf = 1 billion mcflIf QD = 18, then P = $2.40 u18 = -5PG + 3.75(8)lA = (18 billion mcf) x ($1/mcf) = $18 billionlB = (1/2) x (2 b. mcf) x ($0.40/mcf) = $0.4 billionlC = (1/2) x (2 b. mcf) x ($1/mcf) = $1 billionPrice Controls and Natural Gas Shortages15Chapter 1nMeasuring the Impact of Price Controlsl1975uChange in consumer surplus l= A - B = 18 - 0.04 = $17.6 billionuChange in producer surplusl= -A - C = -18-1 = -$19.0 billionPrice Controls and Natural Gas Shortages16Chapter 1nMeasuring the Impact of Price Controlsl1975 dollars, deadweight lossu= -B - C = -0.4 - 1 = -$1.4 billionuIn 2000 dollars, the deadweight loss is more than $4 billion per year.Price Controls and Natural Gas Shortages17Chapter 1The Efficiency ofa Competitive MarketnWhen do competitive markets generate an inefficient allocation of resources or market failure?1) ExternalitiesuCosts or benefits that do not show up as part of the market price (e.g. pollution)18Chapter 1The Efficiency ofa Competitive MarketnWhen do competitive markets generate an inefficient allocation of resources or market failure?2) Lack of InformationuImperfect information prevents consumers from making utility-maximizing decisions.19Chapter 1nGovernment intervention in these markets can increase efficiency.nGovernment intervention without a market failure creates inefficiency or deadweight loss.The Efficiency ofa Competitive Market20Chapter 1P1Q1ABCWhen price is regulated to be no higher than P1, the deadweight loss given by triangles B and C results.Welfare Loss When PriceIs Held Below Market-Clearing LevelQuantityPriceSDP0Q021Chapter 1P2Q3ABCQ2What would the deadweightloss be if QS = Q2?When price is regulated to be no lower than P2 only Q3will be demanded. Thedeadweight loss is givenby triangles B and CWelfare Loss When PriceIs Held Above Market-Clearing LevelQuantityPriceSDP0Q022Chapter 1The Market for Human KidneysnThe 1984 National Organ Transplantation Act prohibits the sale of organs for transplantation.nAnalyzing the Impact of the ActlSupply: QS = 8,000 + 0.2PuIf P = $20,000, Q = 12,000lDemand: QD = 16,000 - 0.2P23Chapter 1DRectangles A and D measure the total value of kidneys when supply is constrained.ACThe loss to suppliersis given by rectangle Aand triangle C.The Market for Kidneys, and Effectsof the 1984 Organ Transplantation ActQuantityPrice8,0004,0000$10,000$30,000$40,000SThe 1984 act effectivelymakes the price zero.BIf consumers receivedkidneys at no cost, theirgain would be given byrectangle A less triangle B.SD12,000$20,00024Chapter 1nThe act limits the quantity supplied (donations) to 8,000.nLoss to supplier surplus:lA + C = (8,000)($20,000) + (1/2)(4,000)($20,000) = $200/m.The Market for Human Kidneys25Chapter 1nGain to recipients:lA - B =(8,000)($20,000) - (1/2)(4,000)($20,000) = $120/m.nDeadweight loss:lB + C or$200 million - $120 million = $80 millionThe Market for Human Kidneys26Chapter 1nOther Inefficiency Cost1) Allocation is not necessarily to those who value the kidneys the most.2) Price may increase to $40,000, the equilibrium price, with hospitals getting the price.The Market for Human Kidneys27Chapter 1nArguments in favor of prohibiting the sale of organs:1) Imperfect information about donors health and screening The Market for Human Kidneys28Chapter 1nArguments in favor of prohibiting the sale of organs:2) Unfair to allocate according to the ability to payuHolding price below equilibrium will create shortagesuOrgans versus artificial substitutesThe Market for Human Kidneys29Chapter 1Minimum PricesnPeriodically government policy seeks to raise prices above market-clearing levels.nWe will investigate this by looking at a price floor and the minimum wage.30Chapter 1BAThe change in producersurplus will beA - C - D. Producersmay be worse off.CDPrice MinimumQuantityPriceSDP0Q0PminQ3Q2If producers produce Q2, the amount Q2 - Q3will go unsold.31Chapter 1BThe deadweight lossis given by triangles B and C.CAwminL1L2UnemploymentFirms are not allowed topay less than wmin. Thisresults in unemployment.SDw0L0The Minimum WageLw32Chapter 1Airline RegulationnDuring 1976-1981 the airline industry in the U.S. changed dramatically.nDeregulation lead to major changes in the industry.nSome airlines merged or went out of business as new airlines entered the industry.33Chapter 1BACAfter deregulation:Prices fell to PO. Thechange in consumer surplus is A + B.Q3DArea D is the costof unsold output.Effect of Airline Regulationby the Civil Aeronautics BoardQuantityPriceSDP0Q0Q1PminQ2Prior to deregulationprice was at Pmin and QD = Q1 and Qs = Q2.34Chapter 1Airline Industry DataNumber of carriers337286608696Passenger load factor(%)545961626769Passenger-mile rate (constant 1995 dollars).218.210.166.150.129.126Real cost index (1995=100)10112211110710099Real cost index corrected for fuel cost increases9498981001009819751980198519901995199635Chapter 1Airline Industry DatanAirline industry data show:1) Long-run adjustment as the number of carriers increased and prices decreased2) Higher load factors indicating more efficiency36Chapter 1Airline Industry DatanAirline industry data show:3) Falling rates4) Real cost increased slightly (adjusted fuel cost)5) Large welfare gain37Chapter 1Price Supports andProduction QuotasnMuch of agricultural policy is based on a system of price supports.lThis is support price is set above the equilibrium price and the government buys the surplus.nThis is often combined with incentives to reduce or restrict production38Chapter 1BDATo maintain a price Psthe government buys quantity Qg . The change inconsumer surplus = -A - B,and the change in producer surplus is A + B + DD + QgQgPrice SupportsQuantityPriceSDP0Q0PsQ2Q139Chapter 1D + QgQgBAPrice SupportsQuantityPriceSDP0Q0PsQ2Q1The cost to the government is the speckled rectanglePs(Q2-Q1)DTotalWelfareLossTotal welfare lossD-(Q2-Q1)ps40Chapter 1Price SupportsnQuestion:lIs there a more efficient way to increase farmers income by A + B + D?41Chapter 1nProduction QuotaslThe government can also cause the price of a good to rise by reducing supply.Price Supports andProduction Quotas42Chapter 1nWhat is the impact of:1) Controlling entry into the taxicab market?2) Controlling the number of liquor licenses?Price Supports andProduction Quotas43Chapter 1BACS reduced by A + BChange in PS = A - CDeadweight loss = BCCDSupply RestrictionsQuantityPriceDP0Q0SPSSQ1Supply restricted to Q1Supply shifts to S Q144Chapter 1BACDSupply RestrictionsQuantityPriceDP0Q0SPSSQ1Ps is maintained with and incentiveCost to government = B + C + D45Chapter 1Supply RestrictionsBAQuantityPriceDP0Q0PSSSDCn = A - C + B + C + D = A + B + D.nThe change in consumer and producer surplus is the same as with price supports.n = -A - B + A + B + D - B - C - D = -B - C.PSwelfare46Chapter 1Supply RestrictionsnQuestions:lHow could the government reduce the cost and still subsidize the farmer?lWhich is more costly: supports or acreage limitations?BAQuantityPriceDP0Q0PSSSDC47Chapter 1Supporting the Price of Wheatn1981lSupply: Qs = 1,800 + 240PlDemand: QD = 3,550 - 266PlEquilibrium price and quantity was $3.46 and 2,630 million bushels48Chapter 1Supporting the Price of Wheatn1981lPrice support was set at $3.70lQD + QG = QDT = 3,440 -266P + QGlQS = QD1,800 + 240P = 3,550 - 266P + QGQG = 506P -1,750QG = (506)(3.70) -175=122 million bushels49Chapter 1D + QgBy buying 122million bushels the governmentincreased the market-clearing price.P0 = $3.702,5662,688ABCQgAB consumer lossABC producer gainSDP0 = $3.462,6301,800The Wheat Market in 1981QuantityPrice50Chapter 1Supporting the Price of Wheatn1981lThe change in consumer surplus = (-A -B)A = (3.70 - 3.46)(2,566) = $616 millionB = (1/2)(3.70-3.46)(2,630-2,566) = $8 millionuChange in consumer surplus: -$624 million. 51Chapter 1Supporting the Price of Wheatn1981lCost to the government:$3.70 x 122 million bushels = $452 millionlTotal cost = $624 + 452 = $1,076 millionlTotal gain = A + B + C = $638 millionlGovernment also paid 30 cents/bushel = $806 million 52Chapter 1Supporting the Price of WheatnIn 1985, export demand fell and the market clearing price of wheat fell to $1.80/bushel.53Chapter 1Supporting the Price of Wheatn1985 Supply: QS = 1,800 + 240Pn1986 Demand: QD = 2580 - 194PlQS = QD at $1.80 and 2,232 million bushelslPS = $3.20 uTo maintain $3.20/bushel a production quota of 2,425 bushels was imposed54Chapter 1Supporting the Price of Wheatn1985lGovernment Purchase: 2,425 = 2,580 - 194P + QGuQG = -155 + 194PuP = $3.20 - the support priceuQG = -155 + 194($3.20) = 466 million bushels55Chapter 1The Wheat Market in 1985QuantityPrice1,800SDP0 = $1.802,232To increase theprice to $3.20, thegovernment bought 466 million bushelsand imposeda production quotaof 2,425 bushels.D + QSSP0 = $3.201,9592,425QS56Chapter 1Supporting the Price of Wheatn1985lGovernment Purchase:u Government cost = $3.20 x 466 = $1,491millionu80 cent subsidy = .80 x 2,425 = $1,940 millionuTotal cost = $3.5 billion57Chapter 1Supporting the Price of WheatnQuestion:lWhat is the change in consumer and producer surplus?58Chapter 1Supporting the Price of Wheatn1996 Freedom to FarmlReduces price supports and quotas until 2003 when they go back into effect under the 1996 law.59Chapter 1Supporting the Price of Wheatn1998 Wheat MarketlP = $2.65lQD = 3244 - 283PlQS = 1944 + 207PlQ = 2493lGovernment subsidy of .66/bushel or $1.6 billion60Chapter 1Import Quotas and TariffsnMany countries use import quotas and tariffs to keep the domestic price of a product above world levels61Chapter 1QSQDPWImportsABC By eliminating imports,the price is increased to PO. The gain is area A. Theloss to consumers A + B + C,so the deadweight loss is B + C.Import Tariff or QuotaThat Eliminates ImportsQuantityPriceHow high would a tariff haveto be to get the same result?DP0Q0SIn a free market, the domestic price equals the world price PW.62Chapter 1DCBQSQDQSQDAP*PwImport Tariff or Quota(general case)QuantityPriceDSnThe increase in price can be achieved by a quota or a tariff.nArea A is again the gain to domestic producers.nThe loss to consumers is A + B + C + D.63Chapter 1Import Tariff or Quota(general case)nIf a tariff is used the government gains D, so the net domestic product loss is B + C.nIf a quota is used instead, rectangle D becomes part of the profits of foreign producers, and the net domestic loss is B + C + D.DCBQSQDQSQDAP*PwQuantityDSPrice64Chapter 1nQuestion:lWould the U.S. be better off or worse off with a quota instead of a tariff? (e.g. Japanese import restrictions in the 1980s)Import Tariff or Quota(general case)DCBQSQDQSQDAP*PwQuantityDSPrice65Chapter 1The Sugar QuotanThe world price of sugar has been as low as 4 cents per pound, while in the U.S. the price has been 20-25 cents per pound.66Chapter 1The Sugar QuotanThe Impact of a Restricted Market (1997)lU.S. production = 15.6 billion poundslU.S. consumption = 21.1 billion poundslU.S. price = 22 cents/poundlWorld price = 11 cents/pound67Chapter 1The Sugar QuotanThe Impact of a Restricted MarketlU.S. ES = 1.54lU.S. ED = -0.3lU.S. supply: QS = -7.83+ 1.07PlU.S. demand: QD = 27.45 - 0.29PlP = .23 and Q = 13.7 billion pounds68Chapter 1CDBQS = 4.0QS = 15.6Qd = 21.1Qd = 24.2AThe cost of the quotasto consumers was A + B + C + D, or $2.4b. The gain to producers was area A, or $1b.Sugar Quota in 1997Quantity(billions of pounds)Price(cents/lb.)SUSDUS510152025048111620PW = 11PUS = 21.93069Chapter 1CDBQS = 4.0QS = 15.6Qd = 21.1Qd = 24.2ASugar Quota in 1997Quantity(billions of pounds)Price(cents/lb.)SUSDUS510152025048111620PW = 11PUS = 21.930Rectangle D was thegain to foreign producerswho obtained quota allotments, or $600 million.Triangles B and C representthe deadweight loss of $800 million.70Chapter 1The Impa
