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11

Varian has a paper on Price Discrimination and Social Welfare in which he gives some necessary and sufficient conditions for (third degree) price discrimination to increase welfare. A necessary condition is that the total level of output (i.e. the total number of consumers served) increases as a result of the discrimination. A sufficient condition is that ...

9

Price discrimination is generally welfare ambiguous. Basic example: A monopoly can price discriminate between two market segments. In segment A, there is one consumer with a willingness to pay of $\$1$million and there are one million consumers with a willingness to pay of$\$1$. In segment B, there is one consumer willing to pay $\$1$million and 400,000 ... 6 From a purely theoretical perspective, if an individual's demand curve is perfectly inelastic, then her willingness to pay for the good is infinite. NB this also implies that she has an infinite budget. Thus, consumer surplus is well defined: it is the willingness to pay minus the price she pays, so as long as the price is finite her consumer surplus is ... 5 It is better to think of it as a "saving" rather than as a"surplus". Also, it is better understood if we imagine heterogeneous consumers for whom a threshold price exists, a "maximum willingness to pay". Then at a given price level, some consumers are willing to buy the product and are expressing their demand for the product, while others are out of the ... 5 We have that $$D(p^*,\mathbf{a}) = -\frac {d}{dp^*}\int_{p^*}^\infty\!D(p;\mathbf{a})\,dp,$$ $$\Rightarrow \text{PS}(p^*) = -\text{CS}'(p^*)p^* \tag{1}$$ So $$\text{PS}(p^*)= \text{CS}(p^*) \Rightarrow -\text{CS}'(p^*)p^* = \text{CS}(p^*)$$ or $$\text{CS}'(p^*) + \frac 1{p^*}\text{CS}(p^*)=0 \tag{2}$$ which is a first-order linear homogeneous ... 4 There is a large economic literature on intellectual property rights. However, the issue seems far from settled on what even the optimal duration for patents are. Note that open source is even a step further than a 0 day patent duration. A strong case for your view would probably be found in Boldrin/Levine: http://levine.sscnet.ucla.edu/general/intellectual/... 4 TL;DR version: "the tunnel" and D+A+B have exactly the same area. You are right to say that post-subsidy producer surplus is equal to the blue area in the following figure: However, it turns out that The Tunnel (i.e. the dark blue area) is exactly equal in size to D+A+B. Intuitively, there are two ways to think of a unit subsidy: Paying the seller a ... 3 This is quite fundamental, so I'd encourage you to look up your textbook as well... but here's a short explanation. Imagine that there are$n$consumers in the market. You sort them by their willingness to pay from high to low. So the first consumer is willing to pay very high, and so on. Let's say the willingness to pay (sorted) is 12, 10, 9, 7, 5, 4, 2. ... 3 Under standard assumptions (some of which you state in your question: no externalities, etc.), no. This follows from the First Welfare Theorem. Perhaps there are departures from standard models that would support something resembling your conclusion, but my guess is that most economists would view any such departure as the absence of “perfect competition”. ... 3 Consumer surplus is their willingness to pay minus the price they pay, and producer surplus is the price they receive minus their willingness to receive. So if you are assuming that consumers are forced to buy at a price of 100, yes the consumer surplus is negative. and according to your example, the producer surplus will be zero. You are right it does not ... 3 In a two-good space, initially the consumer maximizes$U(x,z)\;\; s.t. \;\;p_xx+p_zz =I$and we assume it obtains the solution$(x^*, z^*)$as a function of prices and income. In the constrained case, the consumer will either choose$(0, \tilde z)$or$(x^*+\epsilon, z'$), for some$\epsilon >0 $always exhausting its budget, so in particular,$\tilde ...

3

The mistake you are making appears to be treating $\theta_i$ as a variable while in reality it is a specific value of the derivative. So $$\int_0^{q_i} V'(q)dq = \int_0^{q_i} \theta_i dq \;\;\; i=l,h$$ is wrong, since $V'(q)$ equals $\theta_l$ evaluated at $q_l$ only (and equals $\theta_h$ evaluated at $q_h$ only).

3

Let $Q^d = D(p)$ be the market demand function, depending on price $p$. Let $p^*$ be equilibrium price (that depends also on supply of course). Then Consumer Surplus is usually defined as $$\text{CS}=\int_{p^*}^\infty\!D(p)\,dp$$ i.e. the "area under the demand curve", starting from equilibrium price. So it appears, that if $D(p) =\bar q>0$ (perfectly ...

3

Image courtesy http://economicsonline.co.uk/ Consumer surplus is the sum (integral) of differences between the price each consumer would have payed and the price they got to pay. You need to find out the area of the green zone on the above graph, in the case of your model.

2

Assuming that market power is given, discrimination is always beneficial to agents whose indifference price is smaller than the optimal non-discriminatory price. This is because under discrimination, they will get the good at their indifference price. Without discrimination, they will not get the good at all.

2

I'm going to give you the intuition behind this exercise, so you can solve it for your own. The definition of deadweight loss is the following: In economics, a deadweight loss is a loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable. Causes of deadweight loss can include monopoly pricing, ...

2

Your reasoning is correct (i.e. the book is wrong). First, let's follow the book's logic a little more carefully step by step, beginning with the case where p1 changes first: a fall in p1 leads to a gain of A in market 1 and of H in market 2 (because D2 shifts). a subsequent fall in p2 leads to a gain of B + C in market 2 (we are now using the new demand ...

2

It appears that the consumer faces an exogenous additional constraint in her optimization problem, which restricts the feasible set for the good in question, say $x$. We take this for granted: the consumer will buy either zero or at least what the store demands at the minimum, say $\bar x$. No other options are available. But this means that the consumer ...

2

First of all, there is no need to believe any economic dogma. The real world is usually more complicated than these stories. If anyone can convince me of something with a two minute anecdote, that was probably not an important aspect of my world view, and I should probably not engage in setting such policy. (E.g. via voting for the person who tells the same ...

2

Tax is payed by the party it’s levied on, but I think your question is about tax burden and loss of consumer/producer surplus. In this case both producers and consumers loose the same amount of their surplus, as you can calculate the lost area which is for both of them 40. However, in real life this does not have to be symmetric. It depends on the ...

1

Beyond Art's good and didactic answer you may find the following paper interesting: Using Big Data to Estimate Consumer Surplus: The Case of Uber. It gives a real and concrete example of how to define a consumer surplus. Using almost 50 million individual-level observations [...], we estimate that in 2015 the UberX service generated about \$2.... 1 You probably want to assume that every consumer pays the same bribe. Also, the social surplus depends on the quantity consumed, so it might (spoiler alert: it will) change when the internet is privatized, and when the marginal cost changes. 1 I found book "Intermediate Microeconomics" by John Hey, it seems to support my conclusion. And there is nothing radical. I will quote some places from the chapter 29. "One very obvious reason why a single large firm might be more appropriate in some industry is simply that a single large firm might have access to a more efficient technology than lots of ... 1 Trying to avoid posting further comments above. Ok, as you suggest, let's assume that demand curve does not shift, because P=ATC condition moves the price along the deman curve. The only situation where surplus is higher under monopoly is when ATC curve shifts downward so that at the new scale of operations where P=ATC, ATC is lower than that observed in ... 1 You can think of consumer surplus as exactly analogous to the consumer’s profits. Let’s think of a setting with only one consumer and one firm, both price takers, and standard demand and supply (i.e. downward- and upward-sloping) curves. Observe that profits capture how much more the firm would have been willing to incur in costs in order to produce the ... 1 I think the magnitude of EV is less than the magnitude of CV for a normal good which increases in price (and the reverse for a normal good which reduces in price, so there may be a sign issue) Intuitively, you should be able to argue that for a small price increase for an income-inelastic good (so neither normal nor inferior) the increase in income based ... 1 This simply tells us that the mathematical object$f(x) = 1/x\$ is not friendly to all the economic concepts we want to associate/obtain from its use as a demand function. So, it is not the right tool to represent a demand function, we should use something else. Mathematically, this relates to the harmonic series which is divergent (think of the integral as ...

1

I believe Marshallian demands are less steep than Hicksian demands because we reverse the y and x axis in economics. Thus a larger derivative of x with respect to p will be less steep since p is on the vertical and x is on the horizontal. (image from here)

1

According to standard textbooks on public finance (e.g., Tresch, Public Finance, 3rd ed., p. 272) the tax incidence includes the deadweight loss. This is because we are interested in the burden of the tax on consumers and producers and the deadweight loss can be a large part of this. (However, see https://en.wikipedia.org/wiki/Tax_incidence which does not ...

1

There is theoretical work on the matter in general. In fact, many standard models of optimal consumption taxation will typically yield a distortion that is increasing and convex in the rate of taxation. This means that increasing a tax on a good from 5% to 6% results in higher distortion than increasing it from 2% to 3%. Following this logic, it is better to ...

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