ECON 1202 1st Edition Lecture 7Outline of Last Lecture I. Simultaneous shifts in Supply and DemandII. Supply and demand shifts over timeIII. Common MisconceptionsIV. Consumer Surplus and Producer SurplusOutline of Current Lecture I. How much input is efficient?II. Price Controls III. Determining Tax Incidence Current LectureI. How much input is efficient?a. We can think about efficiency in a market in two ways:i. A market is efficient if all trades take place where the marginal benefit exceeds the marginal cost, and no other trades take placeii. A market is efficient if it maximizes the sum of consumers and producer surplus (i.e. the total net benefit to consumers and firms) know as the economic surplusb. Marginal benefit: additional benefit to a firm of producing one more unit of a good or servicec. Marginal cost: additional cost to a firm of producing one more unit of a good or service i. In the competitive equilibrium, price and quantity are determined by supply and demandii. The equilibrium quantity is economically efficient d. Efficiency at competitive equilibrium,i. At competitive equilibrium, economic surplus is maximized ii. Deadweight loss: about lost due to inefficient prices1. In competitive equilibrium, deadweight loss= 0II. Price Controlsa. Price ceiling: a legally determined max price that sellers can chargei. Below equilibrium 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.ii. i.e. rent1. It is clear that when a government imposes price controls:a. Some people are made better ofb. Some people are made worse ofc. The economy generally sufers as deadweight loss will generally occur 2. Economists seldom recommend price controls with the exception of minimum wage lawsa. Price controls might be justified if there are strong equity efects to override the efficiency lossb. The people benefiting from minimum wage law are generally poorb. Price floor: a legally determined minimum price that sellers can chargei. Above equilibrium ii. i.e. minimum wage c. Black market: a market in which buying and selling take place at prices that violate government price regulationsi. Existence of black market may alleviate some deadweight loss by allowingadditional apartments to be rented but buyers and sellers lose valuable legal protectionsd. It is clear that when a government imposes price controls:a. Some people are made better ofb. Some people are made worse ofc. The economy generally sufers as deadweight loss will generally occur III. Determining tax incidence a. Tax incidence: the actual division of burden of tax between buyers and sellers in a marketb. Consumers never pay 100% of the taxes duei. Sellers have to pay a bit of itc. Determined by the slope of demand and supply and how responsive they are to