Professional Documents
Culture Documents
FHBM1024
Microeconomics
and
Macroeconomics
11
MAIN TEXT
Irvin B. Tucker (2011)
Economics For Todays
World 7th edition
Publisher: Thomson
South Western
12
Method of Assessment
Mid
15%
15%
10%
40%
60%
100%
13
COURSE MATERIALS
Lecture
Notes
Tutorial Questions
Assignment Question
Unit Plan
Obtain
from WBLE
http://wble.utar.edu.my
14
OVERVIEW
15
OVERVIEW Continued..
7 Macroeconomic Problems (Part 2)
Topic 8 Aggregate Demand (AD) and
Aggregate Supply (AS)
Topic 9 Fiscal Policy
Topic 10 Monetary Policy
Topic
16
Chapter 1
Consumer and
Producer Surplus
17
Learning Objective
Consumer surplus
2. Producer surplus
3. Market efficiency and Deadweight
Loss
4. Price Floors and Ceilings
1.
18
1. Consumer Surplus
Measures
19
Consumer Surplus
Using
110
Consumer Surplus
Using
surplus in a market
price
111
12
112
Price
A
Consumer
surplus
Initial
consumer
surplus
P1
P1
C
new Consumer
surplus
P2
Demand
Q1
Quantity
Demand
Q1
Q2
Quantity
In panel (a), the price is P1, the quantity demanded is Q1, and consumer surplus equals the area of
the triangle ABC. When the price falls from P1 to P2, as in panel (b), the quantity demanded rises
from Q1 to Q2, and the consumer surplus rises to the area of the triangle ADF. The increase in
consumer surplus (area BCFD)
113
Consumer Surplus
2. Producer Surplus
Measures
115
Producer Surplus
Using
116
Producer Surplus
Using
surplus in a market
curve
117
Price
P2
P1
B
Producer
surplus
Supply
New producer
surplus
Supply
P1
D
B
Initial
consumer
surplus
Q1
Q2 Quantity
0
Quantity
In panel (a), the price is P1, the quantity supplied is Q1, and producer surplus equals the area of the
triangle ABC. When the price rises from P1 to P2, as in panel (b), the quantity supplied rises from Q1
to Q2, and the producer surplus rises to the area of the triangle ADF. The increase in producer
surplus (area BCFD)
0
Q1
118
Equality
society
119
Equilibrium
price
Consumer
surplus
E
Producer
surplus
B
C
Demand
Equilibrium
Quantity
quantity
Total surplusthe sum of consumer and producer surplusis the area
between the supply and demand curves up to the equilibrium quantity
120
Market Efficiency
Adam
121
Adam Smith
(1723 - 1790)
122
Adam Smith
(1723 - 1790)
123
work
1. Markets are perfectly competitive
2. Outcome in a market matters only to the
buyers and sellers in that market
When these assumptions do not hold
Our conclusion that the market equilibrium
is efficient may no longer be true
124
the world
Market power
A single buyer or seller (small group)
Control market prices
Markets are inefficient
Keeps the price and quantity away
from the equilibrium of supply and
demand
125
the world
failure
127
Deadweight Loss
Deadweight loss is the reduction in
economic surplus resulting from a
market not being in competitive
equilibrium.
The net loss of both consumer &
producer surplus resulting from
underproduction or overproduction of
a product.
128
Deadweight Loss
FIGURE
4-7 Is Not in Equilibrium, There Is a Deadweight Loss
When
a Market
Economic surplus is maximized when a market is in competitive equilibrium. When a
market is not in equilibrium, there is a deadweight loss.
When the price of Thai tea is $2.20, instead of $2.00, consumer surplus declines from an
amount equal to the sum of areas A, B, and C to just area A. Producer surplus increases
from the sum of areas D and E to the sum of areas B and D. At competitive equilibrium,
there is no deadweight loss. At a price of $2.20, there is a deadweight loss equal to the
sum of areas C and E.
129
130
Price Ceiling
Price
Supply
Equilibrium
price
$3
Price
ceiling
Shortage
Demand
0
75
Quantity
supplied
125
Quantity
demanded
Quantity
131
Price Floor
Price
Supply
Price
Floor
4
$3
Equilibrium
price
Demand
0
100
Equilibrium Quantity
Quantity
132
133
134
135
Summary
Consumer
Summary
Producer
Summary
The
Summary