01:220:102 Lecture Notes - Lecture 11: Planned Economy, Deadweight Loss, Price Ceiling

• School: Rutgers University
• Department: Economic
• Course: 01:220:102
• Professor: Barbara Crockett

Document Summary

Invisible hand leads to ef cient production w/i an industry. Invisible hand ef ciently allocates resources across industries. Reservation value for buyer = max willingness 2 pay (based on income, preferences, etc. Reservation value for seller = max supply price (includes cost of production + opportunity cost) Price not @ equilibrium = not maximizing surplus: easier to use linear curve than step function. Consumer surplus = below demand curve, above market price. Producer surplus = above supply curve, below price. Social surplus = sum of consumer surplus + producer surplus. In perfect competition, we don"t want to set quotas (quota = only allow x amount of units to be sold) B/c we include all costs/bene ts into reservation values, we assume there are no externalities (external costs) very simpli ed model compared to the real world. Panel a = quota system (excluding 2 ppl frm market) area where sean & jeff = dead space (waste of space)