Price Controls and Natural Gas Shortages a Measuring the Impact of Price Controls 1975 Change in consumer surplus =A-B=18-0.04=$17.6 billion Change in producer surplus =-A-C=-18-1=-$19.0 billion Chapter Slide 16
Chapter 9 Slide 16 ◼ Measuring the Impact of Price Controls ⚫ 1975 ◆Change in consumer surplus ⚫ = A - B = 18 - 0.04 = $17.6 billion ◆Change in producer surplus ⚫ = -A - C = -18-1 = -$19.0 billion Price Controls and Natural Gas Shortages
Price Controls and Natural Gas Shortages a Measuring the Impact of Price Controls 1975 dollars, deadweight loss ◆=-B-C=-0.4-1=-5$1.4 billion .In 2000 dollars, the deadweight loss is more than $4 billion per year Chapter Slide 17
Chapter 9 Slide 17 ◼ Measuring the Impact of Price Controls ⚫ 1975 dollars, deadweight loss ◆= -B - C = -0.4 - 1 = -$1.4 billion ◆In 2000 dollars, the deadweight loss is more than $4 billion per year. Price Controls and Natural Gas Shortages
The Efficiency of a competitive Market a When do competitive markets generate an inefficient allocation of resources or market failure 1)EXternalities Costs or benefits that do not show up as part of the market price(e.g. pollution Chapter Slide 18
Chapter 9 Slide 18 The Efficiency of a Competitive Market ◼ When do competitive markets generate an inefficient allocation of resources or market failure? 1) Externalities ◆Costs or benefits that do not show up as part of the market price (e.g. pollution)
The Efficiency of a competitive Market a When do competitive markets generate an inefficient allocation of resources or market failure 2)Lack of Information .Imperfect information prevents consumers from making utility maximizing decisions Chapter Slide 19
Chapter 9 Slide 19 The Efficiency of a Competitive Market ◼ When do competitive markets generate an inefficient allocation of resources or market failure? 2) Lack of Information ◆Imperfect information prevents consumers from making utilitymaximizing decisions
The Efficiency of a competitive Market a Government intervention in these markets can increase efficiency a Government intervention without a market failure creates inefficiency or deadweight loss Chapter Slide 20
Chapter 9 Slide 20 ◼ Government intervention in these markets can increase efficiency. ◼ Government intervention without a market failure creates inefficiency or deadweight loss. The Efficiency of a Competitive Market