chapter-9-The-Analysis-of-Competitive-Markets-平狄克微.ppt

Click to edit Master title style,Click to edit Master text styles,Second Level,Third Level,Fourth Level,Fifth Level,Chapter 1,Slide,*,Chapter 9,The Analysis of Competitive Markets,1,Chapter 1,Topics to be Discussed,Evaluating the Gains and Losses from Government Policies-Consumer and Producer Surplus,The Efficiency of a Competitive Market,Minimum Prices,2,Chapter 1,Topics to be Discussed,Price Supports and Production Quotas,Import Quotas and Tariffs,The Impact of a Tax or Subsidy,3,Chapter 1,Evaluating the Gains and Losses fromGovernment Policies-Consumer and Producer Surplus,Review,Consumer surplus,is the total benefit or value that consumers receive beyond what they pay for the good.,Producer surplus,is the total benefit or revenue that producers receive beyond what it cost to produce a good.,4,Chapter 1,To determine the,welfare effect,of a governmental policy we can measure the gain or loss in consumer and producer surplus.,Welfare Effects,Gains and losses caused by government intervention in the market.,Evaluating the Gains and Losses fromGovernment Policies-Consumer and Producer Surplus,6,Chapter 1,The loss to producers is,the sum of rectangle,A,and triangle,C.,Triangle,B,and,C,together measure,the deadweight loss.,B,A,C,The gain to consumers is,the difference between,the rectangle,A,and the,triangle,B,.,Deadweight Loss,Change in Consumer andProducer Surplus from Price Controls,Quantity,Price,S,D,P,0,Q,0,P,max,Q,1,Q,2,Suppose the government,imposes a price ceiling,P,max,which is below the,market-clearing price,P,0,.,7,Chapter 1,Observations:,The total loss is equal to area B+C.,The total change in surplus=,(A-B)+(-A-C)=-B-C,The,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 Controls,8,Chapter 1,B,A,P,max,C,Q,1,If demand is sufficiently,inelastic,triangle,B,can,be larger than rectangle,A,and the consumer,suffers a net loss from,price controls.,Example,Oil price controls,and gasoline shortages,in 1979,S,D,Effect of Price ControlsWhen Demand Is Inelastic,Quantity,Price,P,0,Q,2,10,Chapter 1,Price Controls and Natural Gas Shortages,1975 Price controls created a shortage of natural gas.,What was the deadweight loss?,11,Chapter 1,P,O,=,$8/b,Equilibrium,P,G,=,$2/mcf and,Q=20 Tcf,Price ceiling set at$1,This information can be seen graphically:,Price Controls and Natural Gas Shortages,Data for 1975,13,Chapter 1,Measuring the Impact of Price Controls,1 Tcf=1 billion mcf,If,Q,D,=,18,then,P=,$2.40,18=-5,P,G,+,3.75(8),A=,(18 billion mcf)x($1/mcf)=$18 billion,B=,(1/2)x(2 b.mcf)x($0.40/mcf)=$0.4 billion,C,=(1/2)x(2 b.mcf)x($1/mcf)=$1 billion,Price Controls and Natural Gas Shortages,15,Chapter 1,Measuring the Impact of Price Controls,1975,Change in consumer surplus,=,A-B,=18-0.04=$17.6 billion,Change in producer surplus,=-,A-C=-,18-1=-$19.0 billion,Price Controls and Natural Gas Shortages,16,Chapter 1,The Efficiency ofa Competitive Market,When do competitive markets generate an inefficient allocation of resources or,market failure,?,1)Externalities,Costs or benefits that do not show up as part of the market price(e.g.pollution),18,Chapter 1,The Efficiency ofa Competitive Market,When do competitive markets generate an inefficient allocation of resources or,market failure,?,2)Lack of Information,Imperfect information prevents consumers from making utility-maximizing decisions.,19,Chapter 1,Government intervention in these markets can increase efficiency.,Government intervention without a market failure creates inefficiency or deadweight loss.,The Efficiency ofa Competitive Market,20,Chapter 1,P,1,Q,1,A,B,C,When price is,regulated to be no,higher than,P,1,the deadweight loss given by triangles,B,and,C,results.,Welfare Loss When PriceIs Held Below Market-Clearing Level,Quantity,Price,S,D,P,0,Q,0,21,Chapter 1,P,2,Q,3,A,B,C,Q,2,What would the deadweight,loss be if,Q,S,=Q,2,?,When price is,regulated to be no,lower than,P,2,only,Q,3,will be demanded.The,deadweight loss is given,by triangles,B,and,C,Welfare Loss When PriceIs Held Above Market-Clearing Level,Quantity,Price,S,D,P,0,Q,0,22,Chapter 1,D,Rectangles,A,and,D,measure the total value,of kidneys when,supply is constrained.,A,C,The loss to suppliers,is given by rectangle,A,and triangle,C.,The Market for Kidneys,and Effectsof the 1984 Organ Transplantation Act,Quantity,Price,8,000,4,000,0,$10,000,$30,000,$40,000,S,The 1984 act effectively,makes the price zero.,B,If consumers received,kidneys at no cost,their,gain would be given by,rectangle,A,less triangle,B.,S,D,12,000,$20,000,24,Chapter 1,The act limits the quantity supplied(donations)to 8,000.,Loss to supplier surplus:,A+C=,(8,000)($20,000)+(1/2)(4,000)($20,000)=$200/m.,The Market for Human Kidneys,25,Chapter 1,Gain to recipients:,A-B=,(8,000)($20,000)-(1/2)(4,000)($20,000)=$120/m.,Deadweight loss:,B+C or,$200 million-$120 million=$80 million,The Market for Human Kidneys,26,Chapter 1,Arguments in favor of prohibiting the sale of organs:,1)Imperfect information about donors health and screening,The Market for Human Kidneys,28,Chapter 1,Arguments in favor of prohibiting the sale of organs:,2)Unfair to allocate according to the ability to pay,Holding price below equilibrium will create shortages,Organs versus artificial substitutes,The Market for Human Kidneys,29,Chapter 1,B,A,The change in producer,surplus will be,A-C-D.,Producers,may be worse off.,C,D,Price Minimum,Quantity,Price,S,D,P,0,Q,0,P,min,Q,3,Q,2,If producers produce,Q,2,the amount,Q,2,-Q,3,will go unsold.,31,Chapter 1,B,The deadweight loss,is given by,triangles,B,and,C.,C,A,w,min,L,1,L,2,Unemployment,Firms are not allowed to,pay less than,w,min,.,This,results in unemployment.,S,D,w,0,L,0,The Minimum Wage,L,w,32,Chapter 1,Airline Regulation,During 1976-1981 the airline industry in the U.S.changed dramatically.,Deregulation lead to major changes in the industry.,Some airlines merged or went out of business as new airlines entered the industry.,33,Chapter 1,B,A,C,After deregulation:,Prices fell to,P,O,.,The,change in consumer,surplus is,A+B.,Q,3,D,Area,D,is the cost,of unsold output.,Effect of Airline Regulationby the Civil Aeronautics Board,Quantity,Price,S,D,P,0,Q,0,Q,1,P,min,Q,2,Prior to deregulation,price was at,P,min,and,Q,D,=Q,1,and,Q,s,=Q,2,.,34,Chapter 1,Airline Industry Data,Number of carriers337286608696,Passenger load factor(%)545961626769,Passenger-mile rate (constant 1995 dollars).218.210.166.150.129.126,Real cost index(1995=100)10112211110710099,Real cost index corrected for fuel cost increases94989810010098,197519801985199019951996,35,Chapter 1,Airline Industry Data,Airline industry data show:,1)Long-run adjustment as the number of carriers increased and prices decreased,2)Higher load factors indicating more efficiency,36,Chapter 1,Airline Industry Data,Airline industry data show:,3)Falling rates,4)Real cost increased slightly(adjusted fuel cost),5)Large welfare gain,37,Chapter 1,Price Supports andProduction Quotas,Much of agricultural policy is based on a system of,price supports,.,This is support price is set above the equilibrium price and the government buys the surplus.,This is often combined with incentives to reduce or restrict production,38,Chapter 1,B,D,A,To maintain a price,P,s,the government buys,quantity,Q,g,.,The change in,consumer surplus=,-A-B,and the change in producer,surplus is,A+B+D,D+Q,g,Q,g,Price Supports,Quantity,Price,S,D,P,0,Q,0,P,s,Q,2,Q,1,39,Chapter 1,D+Q,g,Q,g,B,A,Price Supports,Quantity,Price,S,D,P,0,Q,0,P,s,Q,2,Q,1,The cost to the,government is the,speckled rectangle,P,s,(Q,2,-Q,1,),D,Total,Welfare,Loss,Total welfare loss,D-(Q,2,-Q,1,)p,s,40,Chapter 1,Price Supports,Question:,Is there a more efficient way to increase farmers income by,A+B+D?,41,Chapter 1,Production Quotas,The government can also cause the price of a good to rise by,reducing supply.,Price Supports andProduction Quotas,42,Chapter 1,What is the impact of:,1)Controlling entry into the taxicab market?,2)Controlling the number of liquor licenses?,Price Supports andProduction Quotas,43,Chapter 1,B,A,CS reduced by,A+B,Change in PS=,A-C,Deadweight loss=,BC,C,D,Supply Restrictions,Quantity,Price,D,P,0,Q,0,S,P,S,S,Q,1,Supply restricted to,Q,1,Supply shifts to,S Q,1,44,Chapter 1,B,A,C,D,Supply Restrictions,Quantity,Price,D,P,0,Q,0,S,P,S,S,Q,1,P,s,is maintained with,and incentive,Cost to government=,B+C+D,45,Chapter 1,Supply Restrictions,B,A,Quantity,Price,D,P,0,Q,0,P,S,S,S,D,C,=,A-C+B+C+D=A+B+D.,The change in consumer and producer surplus is the same as with price supports.,=,-A-B+A+B+D-B-C-D=-B-C.,46,Chapter 1,Supply Restrictions,Questions:,How could the government reduce the cost and still subsidize the farmer?,Which is more costly:supports or acreage limitations?,B,A,Quantity,Price,D,P,0,Q,0,P,S,S,S,D,C,47,Chapter 1,Supporting the Price of Wheat,1981,Supply:,Q,s,=,1,800+240,P,Demand:,Q,D,=,3,550-266,P,Equilibrium price and quantity was$3.46 and 2,630 million bushels,48,Chapter 1,Supporting the Price of Wheat,1981,Price support was set at$3.70,Q,D+,Q,G,=Q,DT,=3,440-266,P,+,Q,G,Q,S,=Q,D,1,800+240,P,=3,550-266,P+Q,G,Q,G,=,506,P-,1,750,Q,G,=,(506)(3.70)-175=122 million bushels,49,Chapter 1,D+Q,g,By buying 122,million bushels,the government,increased the,market-clearing,price.,P,0,=$3.70,2,566,2,688,A,B,C,Q,g,AB,consumer loss,ABC,producer gain,S,D,P,0,=$3.46,2,630,1,800,The Wheat Market in 1981,Quantity,Price,50,Chapter 1,Supporting the Price of Wheat,1981,The change in consumer surplus=(,-A-B),A=,(3.70-3.46)(2,566)=$616 million,B,=(1/2)(3.70-3.46)(2,630-2,566)=$8 million,Change in consumer surplus:-$624 million.,51,Chapter 1,Supporting the Price of Wheat,1981,Cost to the government:,$3.70 x 122 million bushels=$452 million,Total cost=$624+452=$1,076 million,Total gain=,A+B+C=,$638 million,Government also paid 30 cents/bushel=$806 million,52,Chapter 1,Supporting the Price of Wheat,In 1985,export demand fell and the market clearing price of wheat fell to$1.80/bushel.,53,Chapter 1,Supporting the Price of Wheat,1985 Supply:,Q,S,=,1,800+240,P,1986 Demand:,Q,D,=2580-194,P,Q,S,=Q,D,at$1.80 and 2,232 million bushels,P,S,=,$3.20,To maintain$3.20/bushel a production quota of 2,425 bushels was imposed,54,Chapter 1,Supporting the Price of Wheat,1985,Government Purchase:,2,425=2,580-194P+,Q,G,Q,G,=-155+194P,P,=$3.20-the support price,Q,G,=-,155+194($3.20)=466 million bushels,55,Chapter 1,The Wheat Market in 1985,Quantity,Price,1,800,S,D,P,0,=$1.80,2,232,To increase the,price to$3.20,the,government bought,466 million bushels,and imposed,a production quota,of 2,425 bushels.,D+Q,S,S,P,0,=$3.20,1,959,2,425,Q,S,56,Chapter 1,Supporting the Price of Wheat,1985,Government Purchase:,Government cost=$3.20 x 466=$1,491million,80 cent subsidy=.80 x 2,425=$1,940 million,Total cost=$3.5 billion,57,Chapter 1,Supporting the Price of Wheat,Question:,What is the change in consumer and producer surplus?,58,Chapter 1,Supporting the Price of Wheat,1996 Freedom to Farm,Reduces price supports and quotas until 2003 when they go back into effect under the 1996 law.,59,Chapter 1,Supporting the Price of Wheat,1998 Wheat Market,P=,$2.65,Q,D,=,3244-283,P,Q,S,=1944+207,P,Q=,2493,Government subsidy of.66/bushel or$1.6 billion,60,Chapter 1,Import Quotas and Tariffs,Many countries use import quotas and tariffs to keep the domestic price of a product above world levels,61,Chapter 1,Q,S,Q,D,P,W,Imports,A,B,C,By eliminating imports,the price is increased to,P,O,.The gain is area,A.,The,loss to consumers,A+B+C,so the deadweight loss,is,B+C.,Import Tariff or QuotaThat Eliminates Imports,Quantity,Price,How high would,a tariff have,to be to get the,same result?,D,P,0,Q,0,S,In a free market,the,domestic price equals the,world price,P,W,.,62,Chapter 1,D,C,B,Q,S,Q,D,Q,S,Q,D,A,P*,P,w,Import Tariff or Quota(general case),Quantity,Price,D,S,The increase in price can be achieved by a quota or a tariff.,Area,A,is again the gain to domestic producers.,The loss to consumers is,A+B+C+D.,63,Chapter 1,Import Tariff or Quota(general case),If a tariff is used the government gains,D,so the net domestic product loss is,B+C.,If a quota is used instead,rectangle,D,becomes part of the profits of foreign producers,and the net domestic loss is,B+C+D.,D,C,B,Q,S,Q,D,Q,S,Q,D,A,P*,P,w,Quantity,D,S,Price,64,Chapter 1,Question:,Would 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),D,C,B,Q,S,Q,D,Q,S,Q,D,A,P*,P,w,Quantity,D,S,Price,65,Chapter 1,The Sugar Quota,The 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.,66,Chapter 1,The Sugar Quota,The Impact of a Restricted Market(1997),U.S.production=15.6 billion pounds,U.S.consumption=21.1 billion pounds,U.S.price=22 cents/pound,World price=11 cents/pound,67,Chapter 1,The Sugar Quota,The Impact of a Restricted Market,U.S.,E,S,=1.54,U.S.,E,D,=-0.3,U.S.supply:,Q,S,=-7.83+1.07,P,U.S.demand:,Q,D,=27.45-0.29,P,P=,.23 and,Q,=13.7 billion pounds,68,Chapter 1,C,D,B,Q,S,=,4.0,Q,S,=,15.6,Q,d,=,21.1,Q,d,=,24.2,A,The cost of the quotas,to consumers was,A+B+C+D,or$2.4b,.,The gain to producers,was area,A,or$1b.,Sugar Quota in 1997,Quantity,(billions of pounds),Price,(cents/lb.),S,US,D,US,5,10,15,20,25,0,4,8,11,16,20,P,W,=,11,P,US,=,21.9,30,69,Chapter 1,C,D,B,Q,S,=,4.0,Q,S,=,15.6,Q,d,=,21.1,Q,d,=,24.2,A,Sugar Quota in 1997,Quantity,(billions of pounds),Price,(cents/lb.),S,US,D,US,5,10,15,20,25,0,4,8,11,16,20,P,W,=,11,P,US,=,21.9,30,Rectangle,D,was the,gain to foreign producers,who obtained quota,allotments,or$600 million.,Triangles,B,and,C,represent,the deadweight loss of,$800 million.,70,Chapter 1,The Impact of a Tax or Subsidy,The burden of a tax(or the benefit of a subsidy)falls partly on the consumer and partly on the producer.,We will consider a,specific tax,which is a tax of a certain amount of money,per unit sold.,71,Chapter 1,D,S,B,D,A,Buyers lose,A+B,and,sellers lose,D+C,and,the government earns,A+D,in revenue.The deadweight,loss is,B+C.,C,Incidence of a SpecificTax,Quantity,Price,P,0,Q,0,Q,1,P,S,P,b,t,P,b,is the price(including,the tax)paid by buyers.,P,S,is the price sellers receive,net of the tax.The burden,of the tax is split evenly.,72,Chapter 1,Incidence of a Specific Tax,Four conditions that must be satisfied after the tax is in place:,1)Quantity sold and,P,b,must be on the demand line:,Q,D,=Q,D,(P,b),2)Quantity sold and,P,S,must be on the supply line:,Q,S,=Q,S,(P,S),73,Chapter 1,Incidence of a Specific Tax,Four conditions that must be satisfied after the tax is in place:,3),Q,D,=,Q,S,4),P,b,-P,S,=tax,74,Chapter 1,Impact of a Tax Dependson Elasticities of Supply and Demand,Quantity,Quantity,Price,Price,S,D,S,D,Q,0,P,0,P,0,Q,0,Q,1,P,b,P,S,t,Q,1,P,b,P,S,t,Burden on Buyer,Burden on Seller,75,Chapter 1,Pass-through fraction,E,S,/(E,S,-E,d,),For example,when demand is perfectly inelastic(,E,d,=,0),the pass-t