Transcript Consumer surplus - Stream Economics

Economics – A.S 3.1
Demonstrate an understanding of the
Efficiency of market equilibrium.
Main Content of the Standard
Does the market have efficiency? Compare and Contrast.
Producer Surplus:
Consumer surplus:
The difference between the maximum
price a consumer is willing to pay and
what they actually pay.
The difference between what the
producer is willing to sell a good or
service for and what they actually sell it
for.
Allocative Efficiency:
Reached when the market is in equilibrium.
Producer Surplus vs Consumer Surplus
Who wins??????
Curve exploration
•
Which is bigger?
•
Can we calculate it?
Producer Surplus vs Consumer Surplus
Who wins??????
Curve exploration
•
Which is bigger?
•
Make some calculations!
Consumer and producer surplus
Changes in Supply and Demand causing changes in
consumer and producer surplus. Identifying the
amounts of the change.
Introduction into Surpluses
P ($)
Curve exploration
S
•
•
D1
D
Q
What is the change in Consumer
Surplus?
How much do producers benefit
from the increase in Demand?
Demonstrate change in Surpluses
Curve exploration
S
•
•
D1
D
Q
What is the change in Consumer
Surplus?
Who benefits more from the
change in demand?
Lets have a play
P ($)
P ($)
S
S
D
D
Q
Q
P ($)
S
D
P ($)
Practice
P ($)
S1
C
C
S
S
D
D
F
E
B
F
B
H
A
X
D1
G
G
A
E
D
Q
J
K
D
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H
Questions:
New and old consumer surplus?
New and old producer surplus?
Increase in producer surplus?
New and old consumer surplus?
New and old producer surplus?
Change in producer surplus?
Q
Government
Government involvement.
How does this change allocative efficiency?
Price Controls
-Min (Floor)
-Max (Ceiling)
Tax
Subsidy
Price Controls
Minimum Price
P ($)
Questions:
• WhatSis the surplus for both consumer and
producer before the Pmin.
D
H
C
F
E
I
A
X
J
G
B
•
State the change in Consumer surplus after
the Pmin was implemented.
Pmin
•
Identify the amount of deadweight loss that
has occurred after Pmin was implemented
•
How much dead weight loss was attributed
to consumers
•
D was attributed to producers.
How much
•
Q
Explain why the governments goal when
giving the Pmin may not have been achieved.
The Problem with Milk
Pmax
Milk is extremely healthy
for school children but
for many families it is
unaffordable.
There are calls for the
government to get
involved and make
milk more affordable
for families. This will
improve the health
and reduce obesity in
NZ’s school children.
The government is
considering using a
maximum price to
make milk more
affordable for NZ
families.
For and against!
Price Controls
Maximum Price
Questions:
• What is the surplus for both consumer and
S before the Pmax.
producer
P ($)
D
C
I
G
•
Identify the amount of deadweight loss that
has occurred after Pmax was implemented
B
•
How muchPmax
dead weight loss was attributed
to consumers
•
How much was attributed to producers.
•
Q the governments goal when
Explain why
giving the Pmax may not have been achieved.
A
F
J
State the change in Consumer surplus after
the Pmax was implemented.
H
F
E
•
D
Tax
Why tax?
Review!
Tobacco
Alcohol
Petrol
Application of a tax
40
P($)
Consumer and producer tax
SGovernment
tax
puts a $10 tax
on all cow farmers.
S
35
30
Pc 25
Pe 20
Pp
15
10
5
D
0
10
20
Qt
30
Qe
40
50
60
Quantity
70
Lets be the Government!!!
Here is a possible list of Taxes
Should they or should they not be implemented?
Marijuana
Legalise marijuana and heavily tax
it.
Fat Tax
Tax fast foods that cause obesity
What are we trying
to achieve?
What are the effects
of the tax (CS/PS)?
Tax cows to incorporate cost of DWL?
potential pollution caused.
Cow Fart Tax
Higher tax on RTDs
Higher tax on RTD drinks aimed at
young people.
Starter
1.
2.
3.
4.
5.
6.
Identify the incidence of tax on consumer in
both graphs.
Identify the incidence of tax on producer in
both graphs.
Which graph is likely to gain the most tax
revenue?
Which graph has the most allocative efficiency
lost due to tax?
What is the total loss of CS in Graph 3 after
tax?
What is the total loss of PS in graph 2?
What's a subsidy for?
What is the point of a subsidy anyway?
Drawing
P($)
S
40
Ssub
35
Pp
30
Pe
25
Pc
20
CS
Government
SubsidyDWL
CS
PS
PS
15
10
D
5
0
10
20
30
40
Qe
Qs
50
60
70
Quantity
Starter
Answer the questions below.
1.
2.
3.
4.
5.
6.
7.
8.
Consumer surplus before
Consumer surplus after
Producer surplus after
Amount of the subsidy
Total cost of the subsidy to the
government
Incidence of subsidy on
producer
Incidence of subsidy on
consumer
DWL
j
c
e
d
a
f
b
i
g
h
The Problem with Milk
Pmax
Milk is extremely healthy
for school children but
for many families it is
unaffordable.
There are calls for the
government to get
involved and make
milk more affordable
for families. This will
improve the health
and reduce obesity in
NZ’s school children.
The government is
considering using a
maximum price to
make milk more
affordable for NZ
families.
For and against!
Compare and contrast
The merits of using a subsidy or price control (pmax).
In your answer you should include:
Affect on producer and consumer surplus
Efficiency in the market (DWL)
P ($)
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D
C
H
F
E
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A
B
F
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G
D
Q
Quick Quiz: 3.2 Allocative
efficiency
1.
2.
3.
4.
5.
A loss in allocative efficeincy
resulting from a government
imposition in the market is
called what?
What do the letters DWL stand
for?
What happens to consumer
surplus as a result of a tax?
A loss of welfare by an
individual or group which is
not offset by welfare gain to
some other individual or
group?
A payment made by
government to producers to
encourage production of a
good or service?
1.
2.
3.
4.
5.
Deadweight loss
Deadweight loss
Reduces
Deadweight loss
Subsidy
Trade - importing
Importing
Market for Cars
P$(000)
S
40
35
30
Pe
25
20
15
Pw 10
5
0
D
10
20
30
Qe
40
50
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70
Quantity
(000)
Importing With Government
Involvement
Market for Cars
P$(000)
S
40
$10000
Tariff/car
35
30
Pe
25
20
15
10
Pw
D
5
0
10
20
30
Qe
40
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60
Quantity
70
(000)
Exporting
Market for Milk Solids
P$(000)
40
35
S
30
Pw 25
Pe 20
15
10
D
5
0
10
20
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Qe
40
50
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Quantity
(000)
Exporting with Government
involvement
Market for Milk Solids
P$(000)
40
$5000 Tariff
35
S
30
Pw 25
-Value of DWL
- Australian revenue gained from tariff
-Welfare lost to the market
- Potential producer surplus
- Actual producer surplus
Pe 20
15
10
D
5
0
10
20
30
Qe
40
50
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Quantity
(000)
Quota
What is it?
Watch Andrew Hingston
– quota’s and surplus’
Quantity restriction on imported
goods.
Quota
P$(000)
Market for Cars
S
40
35
CS
30
Pe 25
DWL
20
PS
15
10
D
5
0
10
20
Quota
30
Qe
40
50
60
70
Quantity
(000)
Review and Elasticity - Efficiency
P$(000)
Good A
P$(000)
S
40
Good B
S
40
35
35
30
30
25
25
20
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15
15
10
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D
D
5
0
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5
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0
10
20
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Quantity
60
70
Quantity
(000)
(000)
$5 per item tax