ECON 201 1st Edition Lecture 6 Outline of Last Lecture A Economic Problem Allocating resources given our limits Market allocated quantity demanded and price Preference shift demand curve will move Supply curve will move every time the opportunity cost changes or technology changes Elasticity how much B Income Elasticity If incomes rise the demand curve shifts to the right but how much does the demand go up Percentage change in quantity over percentage change in income C All elasticities are calculated in the same way Q P Today s Lecture I Surplus and Welfare A Consumer Surplus Notion of value The whole area of the triangle is consumer surplus B Producer Surplus Markets are 2 sided This is not profit profit Difference between what they were willing to accept and what they actually receive Market will not sell a good if the price doesn t match the price to produce These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Producer Surplus difference between what producers receive in payments and what they re willing to accept for each unit transacted exchanged Area below the price above the supply curve for each unit transacted C Total Welfare Markets are 2 sided Value provided to suppliers and value provided to the buyers Total Welfare consumer surplus producer surplus D Why are markets so lauded applauded Someone willing to pay more than it costs to produce The perfectly competitive market outcome is the one that maximizes total social welfare CS PS The welfare maximizing income Market Efficiency Maximizing CS PS Any time we deviate left or weight there is some sort of DWL dead weight loss E Applications Taxes Taxes always mean a tax on producers Take money from supplier for every unit they sell The imposition of a per unit tax on a market shift the supply curve back such that the vertical distance between the new and old supply curve is exactly the value of the tax Tax increase on the cost of production Analysis Questions o What happens to the price Price goes up o Does the price of market go up by more less or exactly the price of the tax Price goes up by less than the value of the tax o What happens to the amount of money that sellers receive for each unit transacted Sellers receive less If you impose a tax on sellers rather than passing it off on consumers the suppliers bear it themselves o How much of the tax is paid by the buyer and how much is paid by the seller How much elasticity Buyers burden the elasticity of supply elasticity of supply the elasticity of demand Es Es Ed Sellers burden the elasticity of demand elasticity of supply elasticity of demand Ed Es Ed o What happens to the number of transactions that take place of transactions goes down o What happens to dead weight loss There is no dead weight loss in a competitive market With taxes imposed there is a dead weight loss