Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.
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Transcript of Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.
![Page 1: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/1.jpg)
Price Ceiling
P
A
B
E
C
F
Q
D
S
D
Qd
P1
P
QQs
P0
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Welfare ComputationBefore Ceiling After Ceiling
Consumers’ surplus
A+B+C A
Social Gain A+B+C+D+E+F A+F
Deadweight Loss
_ B+C+D+E
Producers’ surplus
D+E+F F
![Page 3: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/3.jpg)
A Hurricane and the Price of Gas
P
Q
D
S
Q2
P1P0+ cost in time
Q0
P0
S’
Q1
![Page 4: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/4.jpg)
A Hurricane and the Price of Gas
P
Q
D
S
P1=P0+cost in time
Q0
P0
S’
Q1
![Page 5: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/5.jpg)
Cost of Robbery
$ per robbery
Quantity (robberies)
Social Marginal Cost
R$
B
A
Q
Robber’s surplus
B
Loss to Victim
A+B
Social Loss
A
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Water-Diamond ParadoxValue Vs Price
Q Q
PP
Pd
Pw
![Page 7: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/7.jpg)
Effect of Trade on Welfare
• Should the government impose restrictions to commerce (imports and/or exports)?
• Who would win and who would lose?
• Would the gains exceed the looses?
![Page 8: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/8.jpg)
Opening the economy in an exporting country
P
QQd Qs
PW
P
Q
Consumer’s Surplus
D
Producer’s Surplus
S
Exports
Consumers’s are worse off
Producer’s are better off
Social Gain is positive
Small Country Assumption
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Opening the economy in an importing country
P
Q QdQs
PW
P
Q
Consumer’s Surplus
D
Producer’s Surplus
S
Imports
Consumers’s are better off
Producer’s are worse off
Social Gain is positive
![Page 10: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/10.jpg)
Tariff on imported cameras when there exists a domestic industry
Small Country Assumption
P
A
B
EC F
Q
D
S
D
P0+$500
Qo Q1
P0G
Q’o Q’1
Producer’s Surplus
G G+C
Consumers’s Surplus
A+B+C+D+E+F
A+B
Revenue - E
Deadweight Loss
- D+F
![Page 11: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/11.jpg)
Import Quota (limit on quantity of imports)
P
A
B
EC G
Q
D
Domestic Supply
D
Price after quota
Qo Q1
World priceH
Q’o Q’1
Domestic Supply +Imports
F
quota
Producer’s Surplus
H H+C
Consumers’s Surplus
A+B+C+D+E+F+G
A+B
License Holder Surplus
- E+F
Deadweight Loss
- D+Gquota
![Page 12: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/12.jpg)
Effect of Trade on Welfare
• Should the government impose restrictions to commerce (imports and/or exports)?
• Who would win and who would lose?
• Would the gains exceed the looses?
![Page 13: Price Ceiling P A B E C F Q D S D Qd P1 P QQs P0.](https://reader036.fdocuments.in/reader036/viewer/2022082506/5697bfe21a28abf838cb48f3/html5/thumbnails/13.jpg)
Tariff on Imported CamerasSmall Country Assumption-no domestic industry
P
A
BC
Q
D
P0+$500
Qo
P0
Q1
S’
S
Consumers’s Surplus A+B+C A
Revenue - B
Social Gain A+B+C A+B
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Tariff on Imported CamerasBig Country-no domestic industry
P
A
B
EC
F
Q
D
S
DP1
QoQ1
P0
S’
Consumers’s Surplus
A+B+C+D A
Revenue - B+C+E+F
Social Gain A+B+C+D A+B+C+E+F
E+F< or > D
International Supply