Transcript Ch9 - Properties and Applications of the Competitive Model

Chapter Nine
Properties and
Applications of the
Competitive Model
© 2008 Pearson Addison Wesley. All rights reserved
商學新書：聖誕禮物「折現」最好
大公報 [2009-12-07]
• 聖誕節在美國，互贈禮物被視為聯絡感情、表達關懷的最好手
法，故禮物支出每年高達約650億美元，也是經濟的寒暑表。
• 賓州大學華頓商學院教授Joel Waldfogel在他的著作《吝嗇鬼
經濟學：節日不該送禮的理由》(Scroogenomics : Why You
Shouldn‘t Buy Presents for the Holidays)一書中指出，聖誕
節送禮是「集體價值毀滅行為」。
• 他表示，在發達國家，送禮慶祝聖誕節，每年讓價值就這樣蒸
發掉250億美元，收到禮的人，跟自己買給自己的禮物相比，
價值少20%，很多禮物其實不適合收禮人。
商學新書：聖誕禮物「折現」最好
送禮與親密性成正比
• 送禮人若與收禮的人不常往來，其送禮的價值，比其雙方常接
觸來得更低。他續指出，要消弭這種價值浪費，方法之一是乾
脆送現金，這樣收禮的人可以自由選擇去買別的東西。不過他
承認習俗上送現金給人會令收者不悅。
• 送禮的文化不太可能完全廢除，因此他建議，對於熟的人，要
送貼心的禮，若是對不常往來的人，送賀卡是好方式。
•
資料來源﹕
http://paper.wenweipo.com/2009/12/07/FI0912070024.htm
Properties and Applications
of the Competitive Model
• In this chapter, we examine six main topics
– Zero Profit for Competitive Firms in the Long Run
– Producer Welfare
– How Competition Maximizes Welfare
– Policies That Shift Supply Curves
– Policies That Create a Wedge Between Supply
and Demand
– Comparing Both Types of Policies
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9-4
Zero Profit for Competitive
Firms in the Long Run
• Competitive firms earn zero profit in the long
run whether or not entry is completely free.
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9-5
Zero Long-Run Profit with
Free Entry
• The long-run supply curve is horizontal if firms
are free to enter the market, firms have identical
cost, and input prices are constant.
• All firms in the market are operating at minimum
long-run average cost.
• They are indifferent between shutting down or not
because they are earning zero profit.
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9-6
Zero Long-Run Profit
When Entry is Limited
• In some markets, firms cannot enter in response to
long-run profit opportunities.
• One reason for the limited number of firms is that
the supply of an input is limited.
• One might think that firms could make positive
long-run economic profits in such markets; however,
that’s not true.
• The reason why firms earn zero economic profits
is that firms bidding for the scarce input drive its
price up until the firms’ profits are zero.
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9-7
Figure 9.1 Rent
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9-8
Producer Welfare
• A supplier’s gain from participating in the market
is measured by its producer surplus (PS),
which is the difference between the amount for
which a good sells and the minimum amount
necessary for the seller to be willing to produce
the good.
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9-9
Measuring Producer Surplus
Using a Supply Curve
• The producer surplus is closely related to profit.
Producer surplus is revenue, R, minus variable
cost, VC.
• Equation 9.1
• Equation 9.2
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9-10
Figure 9.2
Producer Surplus
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Measuring Producer Surplus
Using a Supply Curve
• Another interpretation of producer surplus is as
a gain to trade.
• Producer surplus equals the profit from trade
minus the profit (loss) from not trading.
• PS = ( R – VC – F ) – (– F ) = R – VC
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9-12
Using Producer Surplus
• A major advantage of producer surplus is that
we can use it to measure the effect of a shock
on all the firms in a market without having to
measure the profit of each firm in the market
separately.
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9-13
How Competition
Maximizes Welfare
• How should we measure society’s welfare?
• One commonly used measure of the welfare of
society, W, is the sum of consumer surplus plus
producer surplus:
W = CS + PS
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Why Producing Less Than the
Competitive Output Lowers Welfare
• Producing less than the competitive output
lowers welfare.
• The change in consumer surplus is
CS  CS2  CS1  A  ( A  B  C )   B  C.
• The change in producer surplus is
PS  PS2  PS1  ( B  D)  ( D  E )  B  E.
• The change in welfare , W  W2  W1.
, is
W  CS  PS  ( B  C )  ( B  E )  C  E.
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9–15
Figure 9.3
Why Reducing Output from the
Competitive Level Lowers Welfare
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9-16
Why Producing Less Than the
Competitive Output Lowers Welfare
• This drop in welfare, W  C  E. , is
deadweight loss (DWL): the net reduction in
welfare from a loss of surplus by one group that
is not offset by a gain to another group from an
action that alters a market equilibrium.
• In short, the deadweight loss is the opportunity
cost of giving up some of this good to buy more
of another good.
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9–17
Why Producing More Than the
Competitive Output Lowers Welfare
• Increasing output beyond the competitive level
also decreases welfare because the cost of
producing this extra output exceeds the value
consumers place on it.
• Because price falls from p1 to p2, consumer
rises by
CS  C  D  E.
• The increase in output causes producer surplus
to fall by
PS  B  C  D  E.
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9–18
Figure 9.4
Why Increasing Output from the
Competitive Level Lowers Welfare
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9-19
Why Producing More Than the
Competitive Output Lowers Welfare
• Because producers lose more than consumers
gain, the deadweight loss is
W  CS  PS  (C  D  E )  ( B  C  D  E )   B
• A market failure is inefficient production or
consumption, often because a price exceeds
marginal cost.
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9–20
Policies That Shift Supply
Curves
• One of the main reasons that economists
developed welfare tools was to predict the
impact of government policies and other events
that alter a competitive equilibrium.
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Policies That Shift Supply
Curves
• Virtually all government actions affect a
competitive equilibrium in one of two ways.
Some government policies, such as limits on the
number of firms in a market, shift the supply or
demand curve.
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Policies That Shift Supply
Curves
• Other government actions, such as sales taxes,
create a wedge or gap between price and
marginal cost so that they are not equal, even
though they were in the original competitive
equilibrium.
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9-23
Restricting the Number of
Firms
• A limit on the number of firms causes the
supply curve to shift to the left, which raises the
equilibrium price and reduces the equilibrium
quantity.
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Figure 9.5
Effect of a Restriction on the Number
of Cabs
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Raising Entry and Exit
Costs
• Barrier to entry
– An explicit restriction or a cost that applies
only to potential new firms—existing firms are
not subject to the restriction or do not bear the
cost.
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Raising Entry and Exit
Costs
• Exit Barriers:
– Some markets have barriers that make it
difficult (though typically not impossible) for a
firm to exit by going out of business.
– In the short run, exit barriers can keep the
number of firms in a market relatively high.
– In the long run, exit barriers may limit the
number of firms in a market.
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Policies That Create A Wedge
Between Supply and Demand
• Welfare effects of a sales tax
– A new sales tax causes the price that
consumers pay to rise, resulting in a loss of
consumer surplus, CS  0 , and a fall in the
price receive, resulting in a drop in producer
surplus, PS  0 . However, the new tax
provides the government with new tax revenue,
T  T  0 , if tax revenue was zero before this
new tax.
– As a result, the change in welfare is
W  CS  PS  T .
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9–28
Figure 9.6
Welfare Effects of a Specific Tax on
Roses
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9-29
Welfare Effects of A Price
Floor
• Price floor: the lowest price a consumer can
legally pay for the good.
• Excess production: More output is produced
than is consumed, so Qg is stored, destroyed, or
shipped abroad.
• Inefficiency in consumption: At quantity they
actually buy, Qd, consumers are willing to pay $5
for the last bushel of soybeans, which is more than
the marginal cost, MC = $3.60, of producing that
bushel.
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9-30
Figure 9.7
Effect of Price Supports in Soybeans
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9-31
Welfare Effects of A Price
Ceiling
• Price Ceiling: the highest price that a firm can
legally charge.
• Because of the price ceiling, consumers can buy
the good at a lower price but cannot buy as
much of it as they would like.
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9-32
Comparing Both Types of Policies:
Trade
• Allow free trade: Any firm can sell in this country
without restrictions.
• Ban all imports: The government sets a quota
of zero on imports.
• Set a positive quota: The government limits
imports to Q .
• Set a tariff: The government imposes a tax
called a tariff (or a duty) on only imported goods.
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9–33
Free Trade Versus A Ban
On Imports
• Equation 9.3:
• Equation 9.4:
• Because the supply curve foreigners face is
horizontal at the world price of $14.70, the total
U.S. supply curve of crude oil is S1 when there
is free trade. The free-trade equilibrium is e1.
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9-34
Figure 9.8
Loss from Eliminating Free Trade
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9-35
Free Trade Versus A Ban
On Imports
• With a ban on imports, the equilibrium e2 occurs
where the domestic supply curve, Sa = S2,
intersects D. The ban increases producer
surplus by B = $132.5 million per day and
decreases consumer surplus by B + C = $163.7
million per day, so the deadweight loss is C =
$31.2 million per day or $11.4 billion per year.
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9-36
Free Trade Versus A Tariff
• A tariff of   $5 per barrel of oil imported or a
quota of Q  2.8 drives the U.S. price of crude oil
to $19.70, which is $5 more than the world price.
Under the tariff, the equilibrium, e3 , is determined
by the intersection of the S 3 total U.S. supply
curve and D demand curve. Under the quota, e3 is
determined by a quantity wedge of 2.8 million
barrels per day between the quantity demanded,
9.0 million barrels per day, and the quantity
supplied, 11.8 million barrels per day.
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9–37
Figure 9.9
Effect of a Tariff (or Quota)
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9-38
Free Trade Versus A Tariff
• Compared to free trade, producers gain
B = $42.8 million per day and consumers lose
B + C + D + E = $61.9 million per day from the
tariff or quota. The deadweight loss under the
quota is C + D + E = $19.1 million per day. With
a tariff, the government’s tariff revenue
increases by D = $14 million a day, so the
deadweight loss is only C + E = $5.1 million per
day.
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9-39
Rent Seeking
• Given that tariffs and quotas hurt the importing
country, why do the Japanese, U.S., and other
governments impose tariffs, quotas, or other
trade barriers?
• The reason is that domestic producers stand to
make large gains from such government actions;
hence it pays for them to organize and lobby the
government to enact these trade policies.
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9-40
Rent Seeking
• In most countries, producers are often able to
convince (cajole, influence, or bribe) legislators
or government officials to aid them, even though
consumers suffer more-than-offsetting losses.
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9-41
Rent Seeking
• Economists call efforts and expenditures to gain
a rent or a profit from government actions rent
seeking.
• If producers or other interest groups bribe
legislators to influence policy, the bribe is a
transfer of income and hence does not increase
deadweight loss (except to the degree that a
harmful policy is chosen).
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9-42
Rent Seeking
• If this rent-seeking behavior—such as hiring
lobbyists and engaging in advertising to influence
legislators—uses up resources, the deadweight
loss from tariffs and quotas understates the
true loss to society.
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9-43