Efficiency and Equity Efficiency and Equity
Efficiency and Equity Efficiency and Equity Market price Price and Qunatity regulations Taxes and Subsidies Command
Externalities Majority Rule Contest Firstcome, firstserved Lottery Government regulations: Public Goods and Common Resources Personal Characteristics
Tax/Subsides Price ceiling/ floor Quotas
The party with the more INELASTIC curve will ALWAYS pay more.
Monopoly
It’s not fair if the result isn’t fair: Vice versa for supply
It’s not fair if the result isn’t fair:
It’s not fair if the result isn’t fair: well off as possible It’s not fair if the rules aren’t fair: Cost is what producers pay; price Producer Surplus – excess of amount Consumer Surplus – excess of the received from the sale. benefit received from a good over the is what producers receive. amount paid. Value is what people are willing to =(price received – marginal cost (minimum supplyprice))/quantity =(marginal benefit (value) – pay; sold price)/quantity bought price is what people must pay.
Creates unemployment
Price floor
Government Actions in Markets
Price rises Quantity decreases
Price falls
Cost rises Subsidy
Cost falls
Quantity increases
Government Actions in Markets
Markets for Illegal Goods P.S. C.S. T.S.
Penalties on sellers increase the cost of selling the good and decrease the supply of the good. Penalties on buyers decrease their willingness to pa y and decrease the demand for the good Penalties on buyers and sellers decrease the quantity of good, raise the price buyers pay, and lower the price sellers receive.
Quantity bought Quantity produced
Price rises
Global Markets in Action
Quantity bought Price falls Quantity produced decreases Quantity bought increases
Importers’ profit Import with quota Producer surplus expands
Quantity produced
Deadweight loss
Utility and Demand Global Markets in Action Utility and Demand
Utility = Satisfaction
Marginal Utility – additional satisfaction from the next unit consumed. It is always decreasing.
Bounded Rationality Bounded Willpower
Bounded Selfinterest The Endowment Effect
Diamond – water paradox Phigh Plow High MU Low MU Low TU High TU
Total utility – the total benefit that a person gets from the consumption of all the different goods and services.
Equation of budget line
I = Px*Qx+Py*Qy
Perfect Compliments Perfect
Substitutes Ordinary Goods
Best affordable point Utility maximized; Slope of Budget line = Slope of indifference curve; Marginal Utility for both goods is equal
MRS=Slope=MUx/MUy=xdelta/ydelta
Possibilities, Preferences, and Choices Organizing Production
Externalities Majority Rule Contest Firstcome, firstserved Lottery Government regulations: Public Goods and Common Resources Personal Characteristics
Tax/Subsides Price ceiling/ floor Quotas
The party with the more INELASTIC curve will ALWAYS pay more.
Monopoly
It’s not fair if the result isn’t fair: Vice versa for supply
It’s not fair if the result isn’t fair:
It’s not fair if the result isn’t fair: well off as possible It’s not fair if the rules aren’t fair: Cost is what producers pay; price Producer Surplus – excess of amount Consumer Surplus – excess of the received from the sale. benefit received from a good over the is what producers receive. amount paid. Value is what people are willing to =(price received – marginal cost (minimum supplyprice))/quantity =(marginal benefit (value) – pay; sold price)/quantity bought price is what people must pay.
Creates unemployment
Price floor
Government Actions in Markets
Price rises Quantity decreases
Price falls
Cost rises Subsidy
Cost falls
Quantity increases
Government Actions in Markets
Markets for Illegal Goods P.S. C.S. T.S.
Penalties on sellers increase the cost of selling the good and decrease the supply of the good. Penalties on buyers decrease their willingness to pa y and decrease the demand for the good Penalties on buyers and sellers decrease the quantity of good, raise the price buyers pay, and lower the price sellers receive.
Quantity bought Quantity produced
Price rises
Global Markets in Action
Quantity bought Price falls Quantity produced decreases Quantity bought increases
Importers’ profit Import with quota Producer surplus expands
Quantity produced
Deadweight loss
Utility and Demand Global Markets in Action Utility and Demand
Utility = Satisfaction
Marginal Utility – additional satisfaction from the next unit consumed. It is always decreasing.
Bounded Rationality Bounded Willpower
Bounded Selfinterest The Endowment Effect
Diamond – water paradox Phigh Plow High MU Low MU Low TU High TU
Total utility – the total benefit that a person gets from the consumption of all the different goods and services.
Equation of budget line
I = Px*Qx+Py*Qy
Perfect Compliments Perfect
Substitutes Ordinary Goods
Best affordable point Utility maximized; Slope of Budget line = Slope of indifference curve; Marginal Utility for both goods is equal
MRS=Slope=MUx/MUy=xdelta/ydelta
Possibilities, Preferences, and Choices Organizing Production
