chapterchapterfourfour©2006PrenticeHallBusinessPublishingEconomicsR.GlennHubbard,AnthonyPatrickO’Brien—1sted.Preparedby:Fernando&YvonnQuijanoEconomicEfficiency,GovernmentPriceSetting,andTaxes2of27©2006PrenticeHallBusinessPublishingEconomicsR.GlennHubbard,AnthonyPatrickO’Brien—1sted.CHAPTER4:EconomicEfficiency,GovernmentPriceSetting,andTaxesAfterstudyingthischapter,youshouldbeableto:Understandtheconceptsofconsumersurplusandproducersurplus.Understandtheconceptofeconomicefficiency,anduseagraphtoillustratehoweconomicefficiencyisreducedwhenamarketisnotincompetitiveequilibrium.Usedemandandsupplygraphstoanalyzetheeconomicimpactofpriceceilingsandpricefloors.Usedemandandsupplygraphstoanalyzetheeconomicimpactoftaxes.ShouldtheGovernmentControlApartmentRents?LEARNINGOBJECTIVES1234NewYorkCity…AboutonemillionofNewYorkCity’stwomillionapartmentsaresubjecttorentcontrol.Theotheronemillionapartmentshavetheirrentsdeterminedinthemarketbythedemandandsupplyforapartments.3of27©2006PrenticeHallBusinessPublishingEconomicsR.GlennHubbard,AnthonyPatrickO’Brien—1sted.CHAPTER4:EconomicEfficiency,GovernmentPriceSetting,andTaxesEconomicEfficiency,GovernmentPriceSetting,andTaxesPriceceilingAlegallydeterminedmaximumpricethatsellersmaycharge.PricefloorAlegallydeterminedminimumpricethatsellersmayreceive.4of27©2006PrenticeHallBusinessPublishingEconomicsR.GlennHubbard,AnthonyPatrickO’Brien—1sted.CHAPTER4:EconomicEfficiency,GovernmentPriceSetting,andTaxesConsumerSurplusAndProducerSurplusConsumerSurplusLEARNINGOBJECTIVE1MarginalbenefitTheadditionalbenefittoaconsumerfromconsumingonemoreunitofagoodorservice.ConsumersurplusThedifferencebetweenthehighestpriceaconsumeriswillingtopayandthepricetheconsumeractuallypays.4-1TheDemandCurveisAlsotheMarginalBenefitCurve5of27©2006PrenticeHallBusinessPublishingEconomicsR.GlennHubbard,AnthonyPatrickO’Brien—1sted.CHAPTER4:EconomicEfficiency,GovernmentPriceSetting,andTaxesConsumerSurplusandProducerSurplusConsumerSurplus4-2TotalConsumerSurplusintheMarketf...
