CHAPTEREconomic Efficiency, Government4Price Setting, and TaxesChapterOutlineandLearningObjectives4.1ConsumerSurplusandProducer Surplus4.2The EfficiencyofCompetitive Markets4.3GovernmentIntervention inthe Market:Price FloorsandPrice Ceilings4.4TheEconomicImpactofTaxesAppendix:QuantitativeDemandand SupplyAnalysis
1 Chapter Outline and Learning Objectives 4.1 Consumer Surplus and Producer Surplus 4.2 The Efficiency of Competitive Markets 4.3 Government Intervention in the Market: Price Floors and Price Ceilings 4.4 The Economic Impact of Taxes Appendix: Quantitative Demand and Supply Analysis CHAPTER 4 CHAPTER Economic Efficiency, Government Price Setting, and Taxes
Should the Government Control Apartment Rents?Rent control puts a legal limit on the rent that landlords can charge foran apartment.Sincerent-controlled rents are usuallyfar below market rents,itseems clear that this doesn't make landlords better off.Does it make tenants better off?Would you prefer tolookfor an apartment ina citywithorwithoutrentcontrol?@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 2 Should the Government Control Apartment Rents? Rent control puts a legal limit on the rent that landlords can charge for an apartment. Since rent-controlled rents are usually far below market rents, it seems clear that this doesn’t make landlords better off. Does it make tenants better off? Would you prefer to look for an apartment in a city with or without rent control?
ConsumerSurplusandProducerSurplus4.1LEARNINGOBJECTIVEDistinguishbetweentheconceptsofconsumersurplusandproducersurplus@2015PearsonEducation,lnc3
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 3 Consumer Surplus and Producer Surplus 4.1 Distinguish between the concepts of consumer surplus and producer surplus
Consumerand Producer SurplusSurplus (noun):Something that remainsabovewhatisusedorneededEconomists use the idea of"surplus"to refer to the benefit that peoplederive from engaging in market transactionsConsumer surplus is the difference between the highest price aconsumer is willing to pay for a good or service and the actual pricethe consumerreceives.Producer surplus is thedifference between thelowest price afirm would be willing to accept for a good or service and theprice it actually receives.@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 4 Consumer and Producer Surplus Surplus (noun): Something that remains above what is used or needed Economists use the idea of “surplus” to refer to the benefit that people derive from engaging in market transactions. Consumer surplus is the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer receives. Producer surplus is the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives
Deriving the Demand Curve for Chai TeaSuppose four peopleHighestPriceConsumerareeachinterestedinWillingto PayS6Theresabuying a cup of chaiPrice(dollars5Tomtea.percup)Theresa4Terri3Tim$6TomWecancharacterize5Territhem by the highest4pricetheyare willingtoTimpay.3MarketdemandcurveforchaiteaAt pricesabove $6,nochai tea will be sold.01234Quantity(cupsperday)Figure 4.1Deriving the demandAt $6, one cup will becurvefor chaiteasold, etc.@2015PearsonEducation,Inc?
© 2015 Pearson Education, Inc. 5 Deriving the Demand Curve for Chai Tea Suppose four people are each interested in buying a cup of chai tea. We can characterize them by the highest price they are willing to pay. At prices above $6, no chai tea will be sold. At $6, one cup will be sold, etc. Deriving the demand curve for chai tea Figure 4.1