Consumer, Producer and Community Surplus
14
Consumer, Producer and Community Surplus • How much would you be willing to pay for this? •Or this?
description
Consumer, Producer and Community Surplus. How much would you be willing to pay for this? Or this?. Consumer Surplus. Consumer surplus The difference between the highest price a consumer is willing to pay and the price the consumer actually pays. Producer Surplus. Producer surplus - PowerPoint PPT Presentation
Transcript of Consumer, Producer and Community Surplus
Consumer, Producer and Community Surplus
• How much would you be willing to pay for this?
• Or this?
Consumer SurplusConsumer surplus The difference
between the highest price a consumer is willing to pay and the price the consumer actually pays.
Producer SurplusProducer surplus The difference between the lowest price a firm would have been willing to accept and the price it actually receives.
Community Surplus of Competitive Markets
Community Surplus Equals the Sum of Consumer Surplus and Producer Surplus
Economic efficiency
Occurs where the sum of consumer surplus and producer surplus is at a maximum.
The incidence of taxation on Community
Surplus
Deadweight welfare loss froman indirect tax
Deadweight loss from an indirect tax
O
S
£
Q
D
P1
Q1
Before-taxsituation
O
S
£
Q
D
P1
Q1
Before-taxsituation
Deadweight loss from an indirect tax
Consumersurplus
O
S
£
Q
D
P1
Q1
Consumersurplus
Producersurplus
Before-taxsituation
Deadweight loss from an indirect tax
O
S
£
Q
D
P1
Q1
S + tax
Q2
P2
P2 - tax
Deadweight loss from an indirect tax
O
S
£
Q
D
P1
Q1
S + tax
Q2
P2
1
2 34
6
5P2 - tax
Deadweight loss from an indirect tax
O
S
£
Q
D
P1
Q1
S + tax
Q2
P2
1
2 34
6
5P2 - tax
Deadweight loss from an indirect tax
O
S
£
Q
D
P1
Q1
S + tax
Q2
P2
1
2 34
6
5P2 - tax
Deadweight loss from an indirect tax
O
S
£
Q
D
P1
Q1
S + tax
Q2
P2
1
2 34
6
5P2 - tax
Tax revenuefor government
Deadweight loss from an indirect tax
O
S
£
Q
D
P1
Q1
S + tax
Q2
P2
1
2 34
6
5P2 - tax
Deadweightloss from tax
Deadweight loss from an indirect tax
