Chapter Nine Applying the Competitive Model. © 2007 Pearson Addison-Wesley. All rights reserved.9–2 Figure 9.1 Consumer Surplus 5 4 3 2 1 p 1 543210 CS.

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Presentation transcript:

Chapter Nine Applying the Competitive Model

© 2007 Pearson Addison-Wesley. All rights reserved.9–2 Figure 9.1 Consumer Surplus p CS 2 = $1 1 = $2 E 1 = $3 E 2 = $3 E 3 = $3 Price = $3 q 1 a b c q, Magazines per week q, Trading cards per year Demand Expenditure, E Consumer surplus, CS Marginal willingness to pay for the last unit of output (a) David’s Consumer Surplus Demand (b) Steven’s Consumer Surplus

© 2007 Pearson Addison-Wesley. All rights reserved.9–3 Application (Page 267) Willingness to Pay on eBay Q, Number of wedding cake toppers July $? $80 $75 $70 $62 $51 $50

© 2007 Pearson Addison-Wesley. All rights reserved.9–4 Figure 9.2 Fall in Consumer Surplus from Roses as Price Rises Q, Billion rose stems per year b a A = $ million B = $23.2 million C = $0.9 million Demand

© 2007 Pearson Addison-Wesley. All rights reserved.9–5 Table 9.1 Effect of a 10% Increase in Price on Consumer Surplus (Revenue and Consumer Surplus in Billions of 2004 Dollars)

© 2007 Pearson Addison-Wesley. All rights reserved.9–6 Page 272 Solved Problem 9.1 Q, Units per week Q 1 Q 3 Q 2 p 1 p 2 e 1 e 2 e 3 D C B A Relatively inelastic demand (at e 1 ) Relatively elastic demand (at e 1 )

© 2007 Pearson Addison-Wesley. All rights reserved.9–7 Figure 9.3 Producer Surplus p* Q * Market supply curve Q, Units per year Market price Variable cost,VC Producer surplus,PS (b)A Market’s Producer Surplus PS 2 = $2PS 3 = $1PS 1 = $3 MC 2 = $2MC 3 = $3MC 4 = $4MC 1 = $1 p Supply q, Units per week (a)A Firm’s Producer Surplus

© 2007 Pearson Addison-Wesley. All rights reserved.9–8 Page 275 Solved Problem 9.2 Q, Billion rose stems per year E = $4.05 million Supply b a D = $104.4 million F

© 2007 Pearson Addison-Wesley. All rights reserved.9–9 Figure 9.4 Why Reducing Output from the Competitive Level Lowers Welfare Q, Units per year Supply Demand p 2 MC 1 = p 1 Q 2 Q 1 e 1 2 e 2 C E B D A F

© 2007 Pearson Addison-Wesley. All rights reserved.9–10 Figure 9.5 Why Increasing Output from the Competitive Level Lowers Welfare Q, Units per year Supply Demand p 2 MC 1 = p 1 Q 2 Q 1 e 1 2 e 2 C F B DE A GH

© 2007 Pearson Addison-Wesley. All rights reserved.9–11 Figure 9.6 Effect of a Restriction on the Number of Cabs (a) Cab Firm q 2 q 1 q, Rides per month E 1 D S 1 S 2 E 2 B A C AC 2 1 MC e 2 e 1 p 2  p 1 p 2 p 1 (b) Market n 2 q 1 Q 2 = n 2 q 2 Q 1 = n 1 q 1 Q, Rides per month

© 2007 Pearson Addison-Wesley. All rights reserved.9–12 Figure 9.7 Welfare Effects of a Specific Tax on Roses Q, Billion rose stems per year  = e 1 e 2 D S Demand C E B A F         = 11¢ S + 11¢

© 2007 Pearson Addison-Wesley. All rights reserved.9–13 Page 287 Solved Problem 9.3 Q, Billions of rose stems per year 39¢ 30¢ 28¢ s = 11¢ e 1 e 2 D G S Demand C E B A F      S  11¢ s = ¢

© 2007 Pearson Addison-Wesley. All rights reserved.9–14 Figure 9.8 Effect of Price Supports in Soybeans Q d = 1.9 Q 1 = 2.1 G D Q s = 2.20 Q, Billion bushels of soybeans per year Q g = 0.3 p 1 = Supply Demand Price support e F B MC A C E p = 5.00 —

© 2007 Pearson Addison-Wesley. All rights reserved.9–15 Page 291 Solved Problem G D 2.2 Q, Billions of bushels of soybeans per year p 1 = $4.59 p 2 = $4.39 Supply Demand Price support F B A C E p = $5.00 — e 1 e 2

© 2007 Pearson Addison-Wesley. All rights reserved.9–16 Page 293 Solved Problem 9.5 Q, Units per year p 3 p 1 p 2 Q s = Q 2 Q d Q 1 e 1 e 2 D p, Price ceiling – C E B A F Supply Demand

© 2007 Pearson Addison-Wesley. All rights reserved.9–17 Figure 9.9 Loss from Eliminating Free Trade Q, Million barrels of oil per day Imports = S a = S 2 S 1, World price e 2 e 1 D B A C Demand

© 2007 Pearson Addison-Wesley. All rights reserved.9–18 Figure 9.10 Effect of a Tariff (or Quota) Q, Million barrels of oil per day Imports = S a = S 2 S 3 Demand S 1, World price e 2 e 3 e 1  = 5.00 F GH B A CE D     

© 2007 Pearson Addison-Wesley. All rights reserved.9–19 Table 9.2 Welfare Cost of Trade Barriers (millions of 2005 dollars)

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