ECON-221 Lecture Notes - Lecture 14: Demand Curve, Economic Equilibrium, Perfect Competition

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coppermule660

6 Aug 2020

School

Diablo Valley College

Department

Economics

Course

ECON-221

Professor

yoon

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Document Summary

Consumers benefit from market exchange otherwise they would not participate: we are going to assume that participation in markets is voluntary (not always the case); no coercion, no power. Consumer surplus = the difference between the amount consumers would be. The difference between your benefit and the cost is the consumer surplus. Consumer surplus = the total area underneath the demand curve but above the market price. Note: the price charged is charged on all units; a consumer does not pay different prices for different units. The base of the triangle is quantity sold. The area of the triangle is the consumer surplus. Cs = x base x height. Producers benefit from market exchange, otherwise they would not participate. Producer surplus = the difference between the amount producers are willing to sell goods for and the price they actually receive (market price)

Related Questions

Question 1

The amount of profit that can be achieved using uniform pricing is __________ the profit that can be achieved from price discrimination because of _______.

Select one:

a. greater than; the cost of trying to determine every single consumer's individual demand (willingness to pay) is prohibitively expensive.

b. less than; uniform pricing is more costly so the ATC and AVC curves are higher than they are under price discrimination.

c. equal to; the TR and TC curves are equivalent under either pricing scheme, so there is no profit advantage to either scheme.

d. less than; total demand includes people who would be willing to pay more than, as well as less than, the uniform market price.

Question 2

A firm selling in two markets is practicing price discrimination:

Select one:

a. when it refuses to sell the good to some group of consumers.

b. anytime it charges different consumers different prices.

c. when it charges the same price to different consumers as long as they differ in their demand for the good.

d. when it is charging different consumers, different prices, and the price difference is not based upon cost differences.

Question 3

To successfully practice price discrimination:

Select one:

a. consumers in two separate markets must have identical demand.

b. the firm must possess market power.

c. it must be easy for consumers in one market to sell to consumers in the other market.

d. the firm must be a pure monopoly.

Question 4

If it could practice first-degree price discrimination, a firm with market power could earn:

Select one:

a. its typical monopoly profit as well as the area which, under uniform pricing, would represent the deadweight loss associated with market power.

b. an area half the size of its monopoly power under uniform pricing.

c. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus.

d. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus and the deadweight loss associated with market power.

erinant26

1. We can conclude that international trade is beneficial because, regardless of whether the country imports or exports a good, the overall increase in well-being outweighs the losses associated with trade.

Is the statement true or false?

2. Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run. This observation helps to explain why many economists are skeptical about the:

a. Unfair-competition argument.

b. Infant-industry argument.

c. national-security argument.

d. Jobs argument

3. Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade:

a. U.S. citizens benefit from lower software prices, increasing consumer surplus in the market.

b. U.S. producers benefit from higher software prices, increasing producer surplus in the market.

c. U.S. software producers are harmed since the price that these producers receive will decline as the price falls to the world price.

d. total surplus in this market will remain unchanged, as the decline in benefits received by software producers exactly balances the increase in benefits received by US software consumers.

blushzebra257

Purpose of Assignment

In Week 2, students will employ the supply and demand model to develop consumer surplus and producer surplus as a measure of welfare and market efficiency. Students learn about welfare economics--the study of how the allocation of resources affects economic well-being--and will discover that under most circumstances, the equilibrium price and quantity is also the one that maximizes welfare. Students will review different sources of externalities and a variety of potential cures and will see that while markets are usually a good way to organize economic activity, governments can sometimes improve market outcomes. Students will see how the U.S. government raises and spends money and the difficulty of making a tax system both efficient and equitable.

Assignment Steps

Scenario: Imagine you have been assigned the responsibility of preparing a paper for the governor's next economic conference.

Prepare a 1,050-word paper addressing the following:

Explain why equilibrium of supply and demand is desirable.

Explain the following concepts using the concept of consumer and producer surplus:

Efficiency of markets

Costs of taxation

Benefits of international trade

Discuss how externalities may prevent market equilibrium and the various government policies used to remedy the inefficiencies in markets caused by externalities.

Analyze the difference between the efficiency of a tax system and the equity of a tax system as it refers to the costs imposed on taxpayers using the benefits principles.

Cite a minimum of three peer-reviewed sources, not including your textbook.

Format consistent with APA guidelines.

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ECON-221 Lecture Notes - Lecture 14: Demand Curve, Economic Equilibrium, Perfect Competition

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