Chap4pp
- 2. Should the Government Control Apartment Rents? Learning Objectives New York City has two million apartments, about one million of which are subject to rent control. The other one million apartments have their rents determined in the market by the demand and supply for apartments. APPENDIX Use quantitative demand and supply analysis. Analyze the economic impact of taxes . 4.4 Understand the economic effect of government imposed price ceilings and price floors . 4.3 Understand the concept of economic efficiency . 4.2 Understand the concepts of consumer surplus and producer surplus . 4.1
- 3. Price ceiling A legally determined maximum price that sellers may charge. Price floor A legally determined minimum price that sellers may receive. Economic Efficiency, Government Price Setting, and Taxes
- 4. Consumer Surplus and Producer Surplus Consumer Surplus Consumer surplus The difference between the highest price a consumer is willing to pay and the price the consumer actually pays. Marginal benefit The additional benefit to a consumer from consuming one more unit of a good or service. 4.1 Learning Objective 4.1
- 5. Consumer Surplus and Producer Surplus Consumer Surplus Learning Objective 4.1 FIGURE 4-1 Deriving the Demand Curve for Chai Tea
- 6. Consumer Surplus and Producer Surplus Consumer Surplus FIGURE 4-2 Measuring Consumer Surplus Learning Objective 4.1
- 7. Consumer Surplus and Producer Surplus FIGURE 4-3 Total Consumer Surplus in the Market for Chai Tea Learning Objective 4.1 Consumer Surplus
- 8. The Consumer Surplus from Satellite Television Consumer surplus allows us to measure the benefit consumers receive in excess of the price they paid to purchase a product. Learning Objective 4.1 Making the Connection
- 9. Consumer Surplus and Producer Surplus Producer Surplus Producer surplus The difference between the lowest price a firm would have been willing to accept and the price it actually receives. Marginal cost The additional cost to a firm of producing one more unit of a good or service. Learning Objective 4.1
- 10. Producer Surplus Consumer Surplus and Producer Surplus FIGURE 4-4 Calculating Producer Surplus Learning Objective 4.1
- 11. What Consumer Surplus and Producer Surplus Measure Consumer Surplus and Producer Surplus Learning Objective 4.1 Consumer surplus measures the net benefit to consumers from participating in a market rather than the total benefit. The net benefit equals the total benefit received by consumers minus the total amount they must pay to buy the good. Similarly, producer surplus measures the net benefit received by producers from participating in a market, or the total amount firms receive from consumers minus the cost of producing the good.
- 12. The Efficiency of Competitive Markets FIGURE 4-5 Marginal Benefit Equals Marginal Cost Only at Competitive Equilibrium Marginal Benefit Equals Marginal Cost in Competitive Equilibrium Learning Objective 4.2
- 13. The Efficiency of Competitive Markets FIGURE 4-6 Economic Surplus Equals the Sum of Consumer Surplus and Producer Surplus Economic Surplus Learning Objective 4.2 Economic surplus The sum of consumer surplus and producer surplus.
- 14. The Efficiency of Competitive Markets FIGURE 4-7 When a Market Is Not in Equilibrium There is a Deadweight Loss Deadweight Loss Deadweight loss The reduction in economic surplus resulting from a market not being in competitive equilibrium. Learning Objective 4.2
- 15. The Efficiency of Competitive Markets Economic efficiency A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production, and in which the sum of consumer surplus and producer surplus is at a maximum. Economic Surplus and Economic Efficiency Learning Objective 4.2
- 16. Government Intervention in the Market: Price Floors And Price Ceilings FIGURE 4-8 The Economic Effect of a Price Floor in the Wheat Market Price Floors: Government Policy in Agricultural Markets Learning Objective 4.3
- 17. Price Floors in Labor Markets: The Debate Over Minimum Wage Policy Learning Objective 4.3 Making the Connection
- 18. Government Intervention in the Market: Price Floors And Price Ceilings FIGURE 4-9 The Economic Effect of a Rent Ceiling Price Ceilings: Government Rent Control Policy in Housing Markets Don’t Let This Happen to YOU! Don’t Confuse “ Scarcity ” with a “ Shortage ” Learning Objective 4.3
- 19. Government Intervention in the Market: Price Floors And Price Ceilings Black Markets Black markets A market in which buying and selling take place at prices that violate government price regulations. Learning Objective 4.3
- 20. What’s the Economic Effect of a “Black Market” for Apartments? Learning Objective 4.3 Solved Problem 4-3
- 21. Does Holiday Gift Giving Have a Deadweight Loss? Gift giving may lead to deadweight loss. Learning Objective 4.3 Making the Connection
- 22. Government Intervention in the Market: Price Floors And Price Ceilings When the government imposes price floors or price ceilings, three important results occur: The Results of Government Price Controls: Winners, Losers, and Inefficiency Learning Objective 4.3 • Some people win. • Some people lose. • There is a loss of economic efficiency.
- 23. Government Intervention in the Market: Price Floors And Price Ceilings Whether rent controls or federal farm programs are desirable or undesirable is a normative question. Whether the gains to the winners more than make up for the losses to the losers and for the decline in economic efficiency is a matter of judgment and not strictly an economic question. Positive and Normative Analysis of Price Ceilings and Price Floors Learning Objective 4.3
- 24. The Economic Impact of Taxes The Effect of Taxes on Economic Efficiency FIGURE 4-10 The Effect of a Tax on the Market for Cigarettes Learning Objective 4.4
- 25. The Economic Impact of Taxes Tax Incidence: Who Actually Pays a Tax? Tax incidence The actual division of the burden of a tax between buyers and sellers in a market. Learning Objective 4.4
- 26. The Economic Impact of Taxes Tax Incidence: Who Actually Pays a Tax? Determining Tax Incidence on a Demand and Supply Graph FIGURE 4-11 The Incidence of a Tax on Gasoline Learning Objective 4.4
- 27. When Do Consumers Pay All of a Sales Tax Increase? Learning Objective 4.4 Solved Problem 4-4
- 28. The Economic Impact of Taxes Tax Incidence: Who Actually Pays a Tax? Does It Matter Whether the Tax Is on Buyers or Sellers? FIGURE 4-12 The Incidence of a Tax on Gasoline Paid by Buyers Learning Objective 4.4
- 29. Is the Burden of the Social Security Tax Really Shared Equally between Workers and Firms? Learning Objective 4.4 Making the Connection
- 30. An Inside LOOK Is Rent Control a Lifeline or Stranglehold? The Landlords: Two Sides of a Coin
- 31. Black market Consumer surplus Deadweight loss Economic efficiency Economic surplus Marginal benefit Marginal cost Price ceiling Price floor Producer surplus Tax incidence K e y T e r m s
- 32. Quantitative Demand and Supply Analysis Q D = 0 = 3,000,000 – 1,000P Q S = 0 = –450,000 + 1,300P Q D = Q S Demand and Supply Equations FIGURE 4A-1 Graphing Supply and Demand Equations and: Appendix
- 33. Quantitative Demand and Supply Analysis Calculating Consumer Surplus and Producer Surplus FIGURE 4A-2 Calculating the Economic Effect of Rent Controls Appendix $373.75 $0 DEADWEIGHT LOSS $278 $1,338.75 RENT CONTROL $865.50 $1,125 COMPETITIVE EQUILIBRIUM PRODUCER SURPLUS CONSUMER SURPLUS