Equity vs. EfficiencyEfficiency is sometimes sacrificed if equity is desired by the society for certain goods services.True or False: Consumer surplus cannot be increased without cutting into producer surplus. FALSERemember the basic assumptions we made about the supply and demand model: perfectly competitive market for a homogeneous good.Additional factors that are important:Well defined property rightsGood information – economic signalA market is said to suffer from market failure if the market is inefficientAttempt to capture more surplus – rent seekingSide effects on others – externalitiesCertain types of goodsExample:Consider the following supply and demand equations:Qs = 200P – 400Qd = 600 – 50PFind the consumer surplus, producer surplus, and total surplus.QuotaThe quota drives a wedge between demand price and the supply price. We call this wedge quota rent.Quotas result in efficient allocation among consumers.Tuesdays11am-1pmECON 306Principle of Microeconomics 09/17/2014Equity vs. Efficiency-Efficiency is sometimes sacrificed if equity is desired by the society for certain goods services.oTrue or False: Consumer surplus cannot be increased without cutting into producer surplus. FALSE-Remember the basic assumptions we made about the supply and demand model: perfectly competitive market for a homogeneous good.-Additional factors that are important:oWell defined property rightsoGood information – economic signal-A market is said to suffer from market failure if the market is inefficientoAttempt to capture more surplus – rent seekingoSide effects on others – externalitiesoCertain types of goods-Example:oConsider the following supply and demand equations:Qs = 200P – 400Qd = 600 – 50PoFind the consumer surplus, producer surplus, and total surplus.09/17/2014 Quota-The quota drives a wedge between demand price and the supply price. We call this wedge quota rent.-Quotas result in efficient allocation among consumers.-09/17/2014 09/17/2014 Tuesdays-11am-1pm-ECON