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    Econ 100.2 Discussion Class 6: 2/22/18 JC Punongbayan

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    Pauline Eviota
    This document contains notes from an economics class discussing price controls, consumer and producer surplus, and market efficiency. It includes examples of minimum wages, price floors and ceilings, and diagrams illustrating how surplus is affected. For instance, it shows that a price floor can lead to a shortage if it is set above the market equilibrium price. The document also discusses when government intervention may be justified to address externalities.

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    Econ 100.2 Discussion Class 6: 2/22/18 JC Punongbayan

    Uploaded by

    Pauline Eviota
    41 views18 pages
    This document contains notes from an economics class discussing price controls, consumer and producer surplus, and market efficiency. It includes examples of minimum wages, price floors and ceilings, and diagrams illustrating how surplus is affected. For instance, it shows that a price floor can lead to a shortage if it is set above the market equilibrium price. The document also discusses when government intervention may be justified to address externalities.

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    Econ 6

    Original Title

    DC 6 - 2.22.18

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    This document contains notes from an economics class discussing price controls, consumer and producer surplus, and market efficiency. It includes examples of minimum wages, price floors and ceilings, and diagrams illustrating how surplus is affected. For instance, it shows that a price floor can lead to a shortage if it is set above the market equilibrium price. The document also discusses when government intervention may be justified to address externalities.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    41 views18 pages

    Econ 100.2 Discussion Class 6: 2/22/18 JC Punongbayan

    Uploaded by

    Pauline Eviota
    This document contains notes from an economics class discussing price controls, consumer and producer surplus, and market efficiency. It includes examples of minimum wages, price floors and ceilings, and diagrams illustrating how surplus is affected. For instance, it shows that a price floor can lead to a shortage if it is set above the market equilibrium price. The document also discusses when government intervention may be justified to address externalities.

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    © All Rights Reserved
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    You are on page 1of 18

    Econ 100.

    2
    Discussion Class 6
    2/22/18
    JC Punongbayan
    Outline
    • Exam 1: Feb 25, Sunday, 9-12 noon. Rooms
    TBA.
    • Price controls (cont.)
    – Applications
    – Exercises
    • Consumer & producer surplus
    – Exercises
    APPLICATION Who benefits
    from a minimum wage?
    Price
    S

    Surplus
    Price floor

    D
    Quantity
    QD2 QD,S QS2
    APPLICATION
    Yolanda migration
    P P
    Samar Cebu
    S2

    S1 S1 S2
    Price floor

    D D
    Q Q
    QD QS QD QS1 QS2
    Q1
    price

    • At which price would a price 12

    11
    ceiling be binding: $4, $5,
    10
    $6, or $7? 9
    S

    • Suppose there’s a price 8

    ceiling at $4. There will be a 7

    shortage/surplus of __ units. 6

    • At which price would a price 5

    4
    floor be non-binding: $8, $7, 3
    $6, or $3? 2

    • Suppose there’s a price floor 1


    D
    at $7. There will be a
    3 6 9 12 15 18 21 24 27 30 quantity
    shortage/surplus of __ units.
    • In 1202, the price of bread in England
    was set by King John at a pre-
    determined price above the market Q2
    price.
    • Assuming it is to help consumers, is it a
    price floor or price ceiling?
    – Is it binding?
    – What kinds of inefficiencies were likely to
    have arisen from this policy?
    • During a poor harvest year, bread
    supply dried up so that bakers found
    the controlled price of bread below
    the market price.
    – Assuming that King John’s policy held,
    how did this bad harvest year affect the
    availability of bread?
    • Source
    Q3
    • Some claim that the unemployment-inducing effect of
    the minimum wage depends partly on the elasticity of
    labor demand and supply. How can you explain this?
    Outline
    • Market efficiency &
    failure.
    • Story:
    – Markets are great (social
    welfare)
    – But markets become less
    great when gov’t intervenes
    where it shouldn’t
    (taxation, protectionism)
    – But there are instances
    where gov’t intervention is
    justified (e.g., externalities)
    Welfare economics
    • All about understanding areas.
    • A peculiar way of measuring “welfare.”
    – Consumer surplus (CS)
    • Willingness to pay & demand
    – Producer surplus (PS)
    • Willingness to sell & supply
    – Social surplus
    • CS+PS
    CS and price decreases
    Price

    A
    P2

    B
    C
    P1

    D F

    Demand
    Q2 Q1 Quantity
    PS and price increases
    Price

    Supply

    P2
    B
    A

    P1
    C G

    Q1 Q2 Quantity
    • Profound result: Q* is
    the ONLY quantity
    level that maximizes
    CS & PS.
    • Aside from this, no
    shortage or surplus.
    • This is Principle #6.
    Outline
    • Market efficiency &
    failure.
    • Story:
    – Markets are great (social
    welfare)
    – But markets become less
    great when gov’t intervenes
    where it shouldn’t
    (taxation, protectionism)
    – But there are instances
    where gov’t intervention is
    justified (e.g., externalities)
    Application: DWL of a tax
    Price
    P4
    Sup p ly
    A
    P3
    Determinants of DWL:
    B C
    (1) Elasticity of D/S
    P2 (2) Size of the tax
    D G

    P1
    F

    Demand
    Q2 Q1 Quanti
    END

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