Supply Claudia Garcia-Szekely © 2000 Claudia Garcia-Szekely 1.

SupplyClaudia Garcia-Szekely

© 2

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1

In a Perfectly Competitive Market

There are so many buyers that no buyer has the power to affect the price.

We say thatBuyers are

price takers.Buyers “react” to

prices

In a Perfectly Competitive Market

There are so many producers that no producer has the power to affect the price.

3

We say thatProducers are

price takers too!Producers also “react” to prices

Seeds

Irrigation

Fertilizer

Workers

5

Cost of Production

$3.25

3

$2.75

$2.25

$1.75

$1.50

4210

Quantity

Quantity Supplied

If Price =

Produce=

If Price ~

Cost

If Price ~

1 2

If Price ~

33 4210Produce=

PriceSupply

$1.75

$2.25

6

Increase in Costs

$3.25

3

$2.75

$2.25

$1.75

$1.50

4210

Quantity

Old Quantity Supplied

If Price ~

Produce=

If Price ~

Cost

If Price ~

01

If Price ~

20

Price

If Price ~

3

New Quantity Supplied

Supply DecreaseSupply Shifts UP/Left

7

Price

Q0Q1

An increase in Costs,Causes a Leftward shift in

Supply

S0

S1 Supply DecreaseSupply Shifts UP/Left

8

Price

Q0Q1

Bad weather, insect infestation, etc.,Causes a Leftward shift in Supply

S0

S1

Weather, Insects, Natural Disasters

Supply DecreaseSupply Shifts UP/Left

More output can be produced from the same amount of inputs

9

Price

Q0 Q1

An improvement in technologyCauses a Rightward shift in SupplyS1

S0

Technology

Supply IncreaseSupply Shifts DOWN/Right

Expectations

10

Price

Q0Q1

Expectation of higher prices in the future,Causes a Leftward shift in Supply TODAY

Producers prefer to wait and sell their production in the future, when prices will be higher.

S0

S1

Prices of other goodsSubstitutes in production – goods for which producing more of one implies producing less of the other.

o Different crops: opium and rubber, tea and other crops.

o Pork can be used to produce bacon or sausage.

Complements in production – goods that are produced together.

o Beef and leather.o Corn and Ethanol fuel, Ethanol fuel cells for

electricity, rocket fuel, Alcoholic beverages, Feedstock, Antiseptic, Antidote 11

The Law of Supply

True ONLY if the cost of production, weather, Technology, Prices of related goods and Expectations remain the same

12

PriceSupply

Th

e h

igh

er

the p

r ic e

The more units will be brought for sale

Ceteris

Paribus

13

Quantity Supplied

The number of units a firm would be willing and able to offer for sale at a given price.

PriceSupply

Is a point on the Supply line

Is a point on the Supply line

Is different for each price

Is different for each price

Movement alongPrice changes

14

SupplyPrice

Supply

Is the entire Supply lineIs the entire Supply line

The The complete complete set set of price and of price and quantity supplied quantity supplied for a firm.for a firm.

Shifts

Changes in cost of production, weather, Technology, Prices of related goods and Expectations

Changes in cost of production, weather, Technology, Prices of related goods and Expectations

Cost TechnologyWeatherExpectationsPrices of other goods

15

Increase in quantity supplied

Increase in supply

Decrease in supply

Decrease in quantity supplied

he

f

g

Price Changes: Movement AlongSupply Shifts

The Market Supply

16

1

3

2

10 30 50 100 200 30 50 10020

90 170 330

1

3

2

Is the sum of the quantities supplied by all the firms in the market

Is the horizontal sum of the individual firms’ supply curves.

17

Market Supply

100

80

120

?

60

? ? ?

Cost TechnologyWeatherExpectationsPrices of other goods

18

Increase in quantity supplied

Increase in supply

Decrease in supply

Decrease in quantity supplied

he

f

g

Supply Shifts

Number of Producers

Price Changes: Move Along

Prices of related goods

IncomesNumber of

consumers in the market.

Tastes and Preferences

Expectations

Demand ShiftsIncrease in demand

Increase in quantity demanded

Decrease in quantity demanded

Decrease in demand

a

d

c

b

Who is affected first, buyers or sellers?1. Increase in cost of production2. Increase in incomes3. Imposition of a tax on

producers4. Producers expect an increase

in price.5. Fear of unemployment

SellersSellers

SellersSellers

SellersSellers

BuyersBuyers

BuyersBuyers

6. A frost (bad weather)7. Increase in the number of

buyers8. Fear of contaminated

product9. A new technology which

increases productivity.10.Increase in price

SellersSellers

SellersSellers

SellersSellers

BuyersBuyers

BuyersBuyers

BuyersBuyers

a

d

c

b

he

f

g

a. Increase in demand

b. Increase in quantity demanded

c. Decrease in quantity demanded

d. Decrease in demand

e. Increase in quantity supplied

f. Increase in supply

g. Decrease in supply

h. Decrease in quantity supplied

23

1. High prices of grain have increased costs for dairy farmers and beef producers. How would this affect the market for beef and milk?

The effect of this event would best be represented by arrow ______ which shows (an increase/a decrease) _______in (Demand/Quantity Demanded/ Supply/Quantity Supplied) __________________. This change was caused by a change in (price/incomes/tastes and preferences/number of consumers/cost, environmental conditions, prices of other goods, expectations, technology)____________

24

2. A sharp increase in the price of beef leads many consumers to switch from beef to chicken. How will this affect the market for chicken in these countries?


25

3. The price of oil falls. How would this affect the freight and shipping industry?


26

4. The price of coffee decreases to record low levels. How would this drop in coffee prices affect the market for coffee?


27

5. Farmers can easily switch from growing coffee to growing Coca. The price of coffee decreases to record low levels. How would this drop in coffee prices affect the market for coca?


28

6. A successful “buy American” campaign shifts consumers’ preferences towards clothes made in America. How would this affect the garment industry in the U.S.?


29

Consider the market for Soybeans

P

0

Want to buy

Want to sell

35

$3.50

4525

$1.50

$2.50 EQUILIBRIUMEQUILIBRIUM

Excess Demand

Excess Supply

25 45

Demand

Supply

A Shortage

30

Pri

ce

Pri

ce

QuantityDemanded

QuantitySupplied

Supply

DemandShortage

Po

5030

20

Shortages occur because the price

is “too” low

The Effect of a Shortage

QuantityDemanded

QuantitySupplied

S

DPo

Shortage

P1

Q Supplied=Q demanded

Q demanded decreases

Q supplied increases

Shortage eliminated

shortage causes a

price increase

90

Q Supplied=Q demanded1206030

Qd drops from 120 units to 60

units: by 60 units

Qs increases from 30

units to 60 units: by 30

units

-60+30

A Surplus

32

Pri

ce

Pri

ce

QuantityDemanded

QuantitySupplied

Supply

DemandSurplus

Po A surplus occurs because the price

is “too” high

The Effect of a Surplus

33QuantityDemanded

QuantitySupplied

Supply

Demand

Po Surplus

P1

Surpluscause

a price drop

Q Supplied=Q demanded

Q demanded increases

Q supplied

decreases

Surplus eliminated

Market Equilibrium

When the quantity firms want to sell is equal to quantity consumers want to purchase.

At equilibrium, there is no reason for the market price to change.

34

35

D

S

300

40

280

320

340

10

260

80

1. Identify the equilibrium price and quantity: Price=_____;Quantity = ___

2. If the price is $280 is the market in equilibrium?

3. Will there be a surplus or a shortage?

4. If so, what is the size of the surplus or shortage?

5. What do you expect will happen to the price?

6. What price do you predict for this market?

7. If the price is $320 is the market in equilibrium?

8. Will there be a surplus or a shortage?

9. If so, what is the size of the surplus or shortage?

10. What do you expect will happen to the price?

11. What price do you predict for this market?

DA

$3.50

$1.50

4 8 Qd 3

$1.50

$3.50DB

Qd

P

$1.50

$3.50DC

94 Qd

0

P

$3.50

$1.50

8Qd

Market Demand = Horizontal Sum of Individual Demands

PP

From the Individual demand curves to Market demand:

0

20

37

Market Demand

100

80

120

140

? ? ? ?

1.Fill in the values for the Market Supply and the Market Demand 2.Find the equilibrium price and quantity: Price = ______;Quantity = _____ 3.If the price is $200 is the market in equilibrium? 4.Will there be a surplus or a shortage? 5.If so, what is the size of the surplus or shortage? 6.Given your answer to the previous question, will you expect the price to increase or decrease?7.What price do you predict for this market

A&E's Supply of

good X

Bob's Supply of

good X

Rose Inc. Supply of

good XMarket Supply

Kyle's Demand

for good X

Ann's Demand

for good X

Jason's Demand

for good X

Mark's Demand

for good XMarket

DemandPrice of X

120 0 0 0 100 35 25 20 160 20 10 10 95 30 20 15 200 30 20 30 90 25 15 10 240 60 25 35 85 20 10 5 280 80 35 45 75 17 5 3 320 95 40 65 65 10 3 2

39

A&E's

Supply of

good X

Bob's Supply of

good X

Rose Inc. Supply of

good X Market

Supply

Kyle's Demand for good

X

Ann's Demand for good

X

Jason's Demand for good

X

Mark's Demand for good

X Market

Demand Price of X 120 0 0 0 0 100 35 25 20 180160 20 10 10 40 95 30 20 15 160200 30 20 30 80 90 25 15 10 140240 60 25 35 120 85 20 10 5 120280 80 35 45 160 75 17 5 3 100320 95 40 65 200 65 10 3 2 80

40

A&E's

Supply of

good X

Bob's Supply of

good X

Rose Inc. Supply of

good X Market

Supply

Kyle's Demand for good

X

Ann's Demand for good

X

Jason's Demand for good

X

Mark's Demand for good

X Market

Demand Price of X 120 0 0 0 0 100 35 25 20 180160 20 10 10 40 95 30 20 15 160200 30 20 30 80 90 25 15 10 140240 60 25 35 120 85 20 10 5 120280 80 35 45 160 75 17 5 3 100320 95 40 65 200 65 10 3 2 801.If the price is $280 is the market in equilibrium? 2.Will there be a surplus or a shortage? 3.If so, what is the size of the surplus or shortage? 4.Given your answer to the previous question, will you expect the price to increase or decrease?. In one or two sentences explain why?

When P = $280:Quantity Supplied =160 Quantity Demanded = 100

Surplus = 60 units

41

D

S

100

1200

80

120

600 1800

1.Find the equilibrium price and quantity: Price = ______;Quantity = _____ 2.If the price is $80 is the market in equilibrium? 3.Will there be a surplus or a shortage? 4.If so, what is the size of the surplus or shortage? 5.Given your answer to the previous question, will you expect the price to increase or decrease?. In one or two sentences explain why?

42

D

S

100

1200

80

120

600 1800

D

S

180

1000

120

240

500 1500

1. Equilibrium Price = ______; Equilibrium Quantity = _____ 2. If the price is $120 is the market in equilibrium? 3. Will there be a surplus or a shortage? 4. If so, what is the size of the surplus or shortage? 5. Given your answer to the previous question, will you expect the price to

increase or decrease?6. What price do you predict for this market?

Fig A Fig B

43

Consider the market for Coca.

Price

0 quantity

D

S

P0

Q0

What will happen to the equilibrium price and quantity?

Government fumigates

Colombian coca fields

Who is affected first?

0

D0

S0

P0

Q0

Supply shifts left

P1

Q1

ShortageA shortage appears

due to drop in supplyPrice increases due

to shortageQuantity exchanged

decrease

S Pe Qe

S1

A decrease in Supply (Shift) and a decrease in quantity

demanded (Move up along)

A decrease in Supply (Shift) and a decrease in quantity

demanded (Move up along)

Increase? Decrease?Shift or move along?

45

D

S

P0

The U.S. Government

puts into effect a campaign to

reduce consumption

Q0

Consider the market for Coca

0

S

Q0

Demand shifts left

A surplus appears

Price decreases

D Pe QeSurplus

D1D0D0

A decrease in Demand andA decrease in Demand and

Q1

P0

P1

Who is affected first?Increase? Decrease?Shift or move along?

A decrease in Quantity Supplied

A decrease in Quantity Supplied

Quantity exchanged decreases

47

Consider the market for coffee.

D

S

P0

Q0

Unusually good

weather increases the size of the crop

48

Unusually Good Weather

0

S0

P0

Q1

Supply shifts right

P1

A surplus appears

Price decreases

Quantity exchanged increases

S Pe Qe

Q0

D0

S1Surplus

An increase in Supply and an increase in quantity demanded

An increase in Supply and an increase in quantity demanded

49

Consider the market for corn.

D

S

P0

Q0

An increase in production of

Ethanol (which is made from

corn)

Increase Demand for corn

SP1

Q0

Demand shifts right

P0A shortage appears

Price increases

Quantity exchanged increases

D Pe Qe

Q1

Shortage

D1D0D0

An increase in Demand and an increase in quantity suppliedAn increase in Demand and an increase in quantity supplied

What caused the following

1. Quantity drops and price drops

2. Quantity increases and price drops

3. Quantity drops and price increases

4. Quantity increase and price increases

51

For each of the following events, draw a supply and demand diagram. Your graph must include:

1. Shifts in supply and/or demand if any2. Identify surplus or a shortage (if any) in your

graph. 3. Old and new equilibrium price/quantity.4. Your graph must be properly labeled. Showing

clearly the original equilibrium and the new equilibrium.

53

1. A sharp increase in the price of beef leads many consumers to switch from beef to chicken.

2. A bumper grain crop cuts the cost of chicken feed in half.

3. Extraordinary cold weather destroys a significant number of chickens

4. A sudden interest in Eastern religions converts many chicken eaters to vegetarians.

5. Increases in income and population.

54

• New wave of diets low in carbohydrates affects orange juice sales. Market: Orange Juice.

• Insect infestation destroys citrus crops. Market: Orange Juice.

• News report widespread contamination of fish with toxic mercury. Market: Fish

• Acid rain has caused fish populations to disappear. Market: Fish

55

Use Supply and Demand to Explain:

• Why do roses cost more on Valentine’s day than during the rest of the year?

• World food prices see dramatic rise?• Why do hotels in Phoenix cost more in

February than in August?• Gasoline prices climb toward $4. • Why are jeans more expensive today than in

the 1950’s?• Why are computers cheaper today than in

the 1980’s?56

0

S0

P0

Q1

P1

Q0

D0

S1Surplus

0

S0P1

Q0

P0

Q1

Shortage

D1D0

S P Q

D P QEffect on price is

indeterminate

Quantity increases

P? Q

Surp

lus

Shor

tage

58

D0

D P QP? Q

0

D

S

P0

Q0

P1

Q1

Shortage

Effect on price is

indeterminate

S P Q

0

S

P1

Q0

P0

Q1

Surplus

D1

Quantity decreases

Surp

lus

Shor

tage

590

S0

P0

Q1

P1

Q0

D0

S1Surplus

D0

D P QQ?P

0

S

P1

Q0

P0

Q1

Surplus

D1

S P Q

Effect on quantity is

indeterminate

Price decreases

Surp

lus

Surp

lus

60

D

S

P0

Q0

P1

Q1

Shortage

S P QS0

P1

Q0

P0

Q1

Shortage

D1

D P Q

Price increases

P

Effect on quantity is

indeterminate

Q?Sh

orta

ge

Shor

tage

61

In two separate graphs, show the effect of these two events. In each graph, show the following:

1. Changes in supply and/or demand if any

2. Whether the shift causes a surplus or a shortage? Identify the surplus/shortage in your graph.

3. Effect of the surplus/shortage on equilibrium price

4. Effect on equilibrium quantity.

Put these effects together and write your answer.

Remember your graphs must be properly labeled. Showing clearly the original situation and the new situation.

62

1. A sharp increase in the price of beef leads many consumers to switch from beef to chicken. High prices of grain have increased the costs of raising chickens. How would this affect the market for chicken?

2. ``Alaska is awash in salmon. Huge fish runs have been building here, adding to the growing output from sources like Chilean fish farms and Russian fishing fleets.'' News report warns consumers of possible salmon contamination: “Widespread contamination of salmon with toxic mercury cast a shadow over the nutritional benefits of fish.” How would this affect the market for salmon?

3. New legislation decreasing the minimum wage comes into effect. A successful “buy American” campaign shifts consumers’ preferences towards clothes made in America. How would this affect the garment industry in the U.S.?

4. A two-day freeze over the weekend devastated the Florida citrus crop. Growers in the state are expecting their smallest crop ever. The new wave of diets low in carbohydrates has reduced consumption of orange juice. How would this affect the market for oranges?

• The price of corn syrup, used in the production of soft drinks, tripled. At the same time, concern with childhood obesity, prompted schools to remove soft drinks from school lunches. Market: soft drinks

• Frustrated by the cost and ineffectiveness of the war on drugs, the U.S. government is considering "decriminalization" of both the use and sale of cocaine. Market: cocaine

• An increase in the number of nursing homes and community health centers and the expansion of home care. At the same time, improving opportunities for women in business. Market: Nurses.

• Grapes can be used to produce wine or raisins. A decrease in the price of wine and a decrease in the price of candy (a substitute for raisins). Market: raisins

63

64

2

$10

$1

10

D

1

$11

If the price is $11 the consumer would buy one unitIf the price is $10 the consumer would buy TWO units

If the price is $1 the consumer would buy 10 units

Unit 1 is worth at least $11 to consumer

Unit 2 is worth at least $10 to consumer

Unit 10th is worth at least $1 to consumer

65

2

$10

$1

10

D

1

$11

Unit 1 is worth at

least $11 to

consumer

Unit 2 is worth at

least $10 to

consumer

Unit 10th is

worth at least $1

to consumer

Market Demand: Value to Consumers The distance to

the Demand curve

Value consumers place on that unit

66

Cost of Production

$3.25

3

$2.75

$2.25

$1.75

4210

Quantity Supplied

If Price < 1.75

Produce=

If Price ~

Cost

If Price ~

1 2

If Price ~

33 4210Produce=

Price

Supply

$1.75

$2.25

The distance to the Supply curve tells us how much it costs to produce each unit.

Supply: Cost of bringing a good to the market

100th 1000th

S (cost)

Cost $10$10

$1Cost $1

100th unit is worth

$10 to consumer

D (Value given by consumer)

1000th unit is worth $1 to consumer

Optimum Output Level

S (cost)

Optimum Output Level

Equilibrium Quantity

Produce all units the consumer values enough to pay the cost of bringing them to market

Produce all units the consumer values enough to pay the cost of bringing them to market

Value to consumer

Cost

Cost

Value to consumer Greater than Cost

Cost Greater than Value to consumer

PRODUCER AND CONSUMER SURPLUS

Ch. 5 (pp. 94-96)

69

Willingness to Pay

D

1

10

Will

ingn

ess

to p

ay

2 3

8

6

$10 for one unit

$8 for the second unit

$6 for the third unit

$24$24

Long Distance Service

71

D

60

0.55

120 180

0.45

0.35

Consumer Surplus = 81

– 63= 18

If the price is $0.3560

*0.5

5=$3

3

60*0

.45=

$27

60*0

.35=

$21

$81Consumer Actually

pays $0.35 x 180 = $63

Minutes

Consumer Surplus

72

D

Will

ingn

ess

to p

ay

1 Minute intervals180 minutes

Consumer actually pays =

0.35*180

Consumer surplus

If the price is $0.35

The area below the demand curve and above the price the consumer pays

Consumer surplus = Area

of triangle

Consumer surplus in a Perfectly Competitive market:

D

Units of output, Q

Supply = Cost

Q = 4000

Consumer Surplus

5

The area below the demand curve and above the price the consumer

pays

Producer Surplus

74

S = Cost

2

4

6

1 2 3

If The market price is $6

Producer Surplus = 18 – 12 = 6

Cost=12

TR = $6*3=$18

PS = 6The area above the supply curve and below the price the producer receives

~ Profit

Producer Surplus under Perfect Competition

D

Supply = Cost

4000

C S

P SPS

10

5

2

The area above the supply curve and below the price the producer

receives

Consumer surplus in a Perfectly Competitive market:

76

D

Supply = Cost

Q = 4000

CS = Triangle Area

10

5

2

Triangle Area = Base x Height x ½Triangle Area = 4000 x (10-5) x 1/2

Producer Surplus under Perfect Competition

77D

Supply/Cost

4000

PS = Triangle Area

10

5

2

Triangle Area = Base x Height x ½Triangle Area = 4000 x (5-2) x 1/2

Perfect Competition

D

Q

Supply/Cost

Qe=4000

C S

P S

10

5

2

D

S

11

21.5

25

4

5 20 50

Calculate Consumer and Producer Surplus at Equilibrium

5.75

8012

3456

10

789

10

20 30 40 50 60 70 80 90 100

Calculate Consumer and Producer Surplus at Equilibrium

When the market is not allowed to clear

D

Q

S

1,000

C S

P S

Qd =5000Qs =1000 3,000

2,000Can’t

charge more than

$1,000Price Ceiling

All

thes

e pr

ices

ar

e pr

ohib

ited

Prevents price from reaching equilibrium

Shortage

Price Ceiling: Consumers May Win or Lose

D

S

600

3,900

2,200

CS at equilibrium

300

Gain to consumerLoss to Consumer7,300

1000

900

CS: Area below Demand

Above Price

CS: Area below Demand

Above Price

Price Ceiling: Producers Lose

D

SLoss to Producer

3,900

2,200

600300

1000

7,300

900

PS: Area below Price

Above Supply


Above Supply

A subsidy to Consumers and a Tax to Producers

Loss to Producer

D

S

600

3,900

2,200

300

Gain to consumer

D

S

600

3,900

2,200

300

CSCS

TaxSubsidy

Welfare Loss

Quantity Bought/Sold

Price Ceiling

85

D

Q

$

S

P=$2

4000

C S

P S$1

2000

Price Ceiling

86

D

Q

S

$6

40

C S

P S$4

$8

$10

20

$2

When the market is not allowed to clear

D

Q

S

8 C S

P S

Qd =20,000 Qs =60,00040,000

4

Must pay at least Price Floor

Prevents price from reaching equilibrium

4

All

thes

e pr

ices

ar

e pr

ohib

ited

Surplus

Surplus

Price Floor: Consumers Lose

88

D

S

4

2

2

3Loss to Consumer

6

Price Floor: Producers May Win or Lose

D

S

4

2

2

3Loss to Producer

Gain to Producer

6


Above Supply


Above Supply

A subsidy to Producers and a Tax to Consumers

D

S

4

2

CS

2

3 CS

PS

D

S

4

2

2

3

Loss to Consumer

Gain to ProducerGain to

Producer

SubsidyTaxTax

Loss of Surplus to Society

91

D

S

4

2CS

2

3 CS

PS

D

S

4

2

2

3

PS

Loss to Consumer

Loss to Producer

Quantity Bought/Sold

Welfare Loss from Price Floor

92

D

Q

$

S

P=$2

4

$5C S

P S

P SP S

Welfare Loss from Price Floor

93

D

Q

S

50

$8C S

$4

$6

$10

30

$2

©2

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94

Government imposes a Price Ceiling at $6 Calculate: CS,PS and WL.

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Government imposes a Price Ceiling at $6 Calculate: CS,PS and WL.

CS

PS

WL

©2

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OldPS

NewCS

New PS

Subsidy to ConsumerSubsidy to ConsumerTax to ProducerTax to Producer

WLWL

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97

Government imposes a Price Floor at $12 Calculate: CS,PS and WL.

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00

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98

Government imposes a Price Floor at $12 Calculate: CS,PS and WL.

CS

PS WL

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1,2

00

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99

PS (12-6)*16 (12-6)*16

(6-2)*16*(1/2)

12-6)*(24-16)*(1/2)

(20-12)*16*(1/2)

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00

1,2

00

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100

Old CS

Old CS

New CSNew CS

WLWLNewPS

Subsidy to Producer

Subsidy to Producer

Tax to Consumer

Tax to Consumer

D

S

12

200

11

13

14

100

10

300

Government imposes a Price Floor at $13: Qs = ___ Qd = _____Government imposes a Price Floor at $11: Qs = ___ Qd = _____Government imposes a Price Ceiling at $13: Qs = ___ Qd = _____Government imposes a Price Ceiling at $11: Qs = ___ Qd = _____

Equilibrium Price= ____Qs = ____ Qd = _____

Consumer Surplus= Producer Surplus= Welfare Loss= Tax to: Subsidy to: Tax/Subsidy =

103D

S

30

100

20

40

50

50

10

150

Calculate Consumer and Producer Surplus and welfare loss:1. At equilibrium2. When the government imposes a price floor at $40. This floor is equivalent to a tax on

_____and a subsidy to _________ the size of this tax/subsidy is equal to __________3. When the government imposes a price ceiling at $20. This ceiling is equivalent to a tax

on _____and a subsidy to _________ the size of this tax/subsidy is equal to _________

Figure 1

104D

S

15

1000

10

20

25

500

5

1500

Figure 2

Calculate Consumer and Producer Surplus and welfare loss:1. At equilibrium2. When the government imposes a price floor at $10. This floor is equivalent to a tax on



105D

S

15

1000

10

20

25

500

5

1500

Figure 2

Calculate Consumer and Producer Surplus and welfare loss:1. At equilibrium2. When the government imposes a price ceiling at $10. This floor is equivalent to a tax on



Supply Claudia Garcia-Szekely © 2000 Claudia Garcia-Szekely 1.

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Transcript of Supply Claudia Garcia-Szekely © 2000 Claudia Garcia-Szekely 1.