# Tag Info

6

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 ...

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 ...

5

I think you misunderstood what the supply line represents. The function takes as its argument the number of units sold. It then returns the lowest price which the supplier of the last unit requires such that he is willing to sell. Thus, the profit would not be $10*5$. Instead, the last person willing to sell the good receives 0 profit as he is selling at ...

5

The oil price has fallen because production is very high, demand has not risen in line with production, and so the world's existing oil stores have filled. Neither hydro, nor wind nor PV are substitutes for oil, so they can't directly drive down oil prices. To explain: hydro, wind and PV generate electricity; but very little oil is used to generate ...

5

There are several reasons from supply and demand side. From production side, for example, contrary to anouncement of cutting production (from Saudi Arabia, Venezuela and Qatar), Saudi Arabia continued to increase its production. (There are some political reasons behind like Saudi Arabia would like to make some pressure on Russia and USA but I don't enter ...

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”. ...

2

(This ended up being a long post, but I find the approach of the textbook a bit outdated). It is interesting to examine the issue from a (simplistic) game-theoretic point of view. Assume a fixed (no entry) large number $N$ of small identical producers, meaning that the actions of each one individually does not affect the market. The market demand curve ...

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

What is CS and PS out-of-equilibrium at $P=30$: I think that answer to this question lies in misunderstanding the definition's of consumer and producer surplus. The consumer and producer surplus are actually (following Mankiw Principles of Economics, 8th ed, pp 135 and 140 consumer surplus: the amount a buyer is willing to pay for a good minus the amount ...

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

Consider two situations: (i) a price so high that no consumer buys a good, (ii) the market price at which supply and demand are equal. CS=PS=0 in situation (i) and CS>0 and PS>0 in situation (ii). If you move from (i) to (ii) CS increases and PS as well. If you move from (ii) to (i) PS decreases and so does CS. If consumers cannot be forced to buy, the ...

2

The key to this is in the hint. It lets you know supply and demand are both linear, so you need to figure out what the functions of those two curves are. In this case, you have $$Q_D = 18 - 1.5P$$ $$Q_S = 3P$$ Plot these on a supply/demand graph (P on the vertical axis, Q on the horizontal), and the consumer surplus is the shaded area (note, it stops at ...

1

Yes in this case producer surplus is $\\\$1$and consumer surplus is$\\\$2$. Your calculations are thus correct. Generally, producer and consumer surplus are not just willingness to pay minus market price times quantity, and market price minus marginal cost times quantity, but in this case they are. Generally producer and consumer surplus are defined as ...

1

I think calling this 'trick' is a bit of a misnomer because there is nothing particularly tricky about it. When you make any welfare analysis of some change (tax/quota etc.) you need to compare situation after change with situation before change. For that reason you calculate the deadweight loss (DWL) of policy as a difference between consumer surplus before ...

1

I see a lot of these posts are very complete, and I think a more direct answer might be beneficial here. The supply curve represents the amount that producers are willing and able to sell at. Producer surplus is the space between the existing price and the supply curve. The demand represents the amount that buyers are willing and able to buy at. Consumer ...

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

Equating supply and demand we obtain the equilibrium $$P^* = 75, Q^*=100$$ The corresponding diagram is Consumer Surplus is the area of triangle $B-E-C$ so $$CS = \frac 12 \cdot (100-75)\cdot 100 = 1250$$ Producer Surplus is the area of the triangle $B-E-A$ so $$PS = \frac 12 \cdot (75-20)\cdot 100 = 2750$$

Only top voted, non community-wiki answers of a minimum length are eligible