1、Fernando & Yvonn QuijanoPrepared by:The Analysisof CompetitiveMarkets9C H A P T E RCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.Chapter 9: The Analysis of Competitive Markets2 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentic
2、e Hall Microeconomics Pindyck/Rubinfeld, 7e.CHAPTER 9 OUTLINE9.1 Evaluating the Gains and Losses from Government PoliciesConsumer and Producer Surplus9.2 The Efficiency of a Competitive Market9.3 Minimum Prices9.4 Price Supports and Production Quotas9.5 Import Quotas and Tariffs9.6 The Impact of a T
3、ax or SubsidyChapter 9: The Analysis of Competitive Markets3 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.EVALUATING THE GAINS AND LOSSESFROM GOVERNMENT POLICIESCONSUMER AND PRODUCER SURPLUS9.1Review of Consumer and Producer SurplusCons
4、umer A would pay $10 for a good whose market price is $5 and therefore enjoys a benefit of $5.Consumer B enjoys a benefit of $2,and Consumer C, who values the good at exactly the market price, enjoys no benefit.Consumer surplus, which measures the total benefit to all consumers, is the yellow-shaded
5、 area between the demand curve and the market price.Consumer and Producer SurplusFigure 9.1Chapter 9: The Analysis of Competitive Markets4 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.EVALUATING THE GAINS AND LOSSESFROM GOVERNMENT POLIC
6、IESCONSUMER AND PRODUCER SURPLUS9.1Review of Consumer and Producer SurplusProducer surplus measures the total profits of producers, plus rents to factor inputs. It is the benefit that lower-cost producers enjoy by selling at the market price, shown by the green-shaded area between the supply curve a
7、nd the market price.Together, consumer and producer surplus measure the welfare benefit of a competitive market.Consumer and Producer Surplus (continued)Figure 9.1Chapter 9: The Analysis of Competitive Markets5 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pi
8、ndyck/Rubinfeld, 7e.EVALUATING THE GAINS AND LOSSESFROM GOVERNMENT POLICIESCONSUMER AND PRODUCER SURPLUS9.1Application of Consumer and Producer Surpluswelfare effects Gains and losses to consumers and producers.The price of a good has been regulated to be no higher than Pmax, which is below the mark
9、et-clearing price P0. The gain to consumers is the difference between rectangle A and triangle B.The loss to producers is the sum of rectangle A and triangle C. Triangles B and C together measure the deadweight loss from price controls.Change in Consumer and Producer Surplus from Price ControlsFigur
10、e 9.2 deadweight loss Net loss of total (consumer plus producer) surplus.Chapter 9: The Analysis of Competitive Markets6 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.EVALUATING THE GAINS AND LOSSESFROM GOVERNMENT POLICIESCONSUMER AND PR
11、ODUCER SURPLUS9.1Application of Consumer and Producer SurplusIf demand is sufficiently inelastic, triangle B can be larger than rectangle A. In this case, consumers suffer a net loss from price controls.Effect of Price Controls When Demand Is InelasticFigure 9.3Chapter 9: The Analysis of Competitive
12、 Markets7 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.EVALUATING THE GAINS AND LOSSES FROM GOVERNMENT POLICIESCONSUMER AND PRODUCER SURPLUS9.1Supply: QS = 15.90 + 0.72PG + 0.05PODemand: QD = 10.35 0.18PG + 0.69POThe market-clearing pri
13、ce of natural gas is $6.40 per mcf, and the (hypothetical) maximum allowable price is $3.00. A shortage of 23.6 20.6 = 3.0 Tcf results.The gain to consumers is rectangle A minus triangle B, and the loss to producers is rectangle A plus triangle C. The deadweight loss is the sum of triangles B plus C
14、.Effects of Natural Gas Price ControlsFigure 9.4Chapter 9: The Analysis of Competitive Markets8 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.THE EFFICIENCY OF A COMPETITIVE MARKET9.2Market FailureThere are two important instances in whi
15、ch market failure can occur:1. Externalities2. Lack of Informationeconomic efficiency Maximization of aggregate consumer and producer surplus.market failure Situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers.ex
16、ternality Action taken by either a producer or a consumer which affects other producers or consumers but is not accounted for by the market price.Chapter 9: The Analysis of Competitive Markets9 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,
17、7e.THE EFFICIENCY OF A COMPETITIVE MARKET9.2When price is regulated to be no lower than P2, only Q3 will be demanded. If Q3 is produced, the deadweight loss is given by triangles B and C. At price P2, producers would like to produce more than Q3. If they do, the deadweight loss will be even larger.W
18、elfare Loss When Price is Held Above Market-Clearing LevelFigure 9.5Chapter 9: The Analysis of Competitive Markets10 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.THE EFFICIENCY OF A COMPETITIVE MARKET9.2Supply: QS = 16,000 + 0.4PDemand:
19、 QD = 32,0000.4PThe market-clearing price is $20,000; at this price, about 24,000 kidneys per year would be supplied. The law effectively makes the price zero. About 16,000 kidneys per year are still donated; this constrained supply is shown as S.The loss to suppliers is given by rectangle A and tri
20、angle C. If consumers received kidneys at no cost, their gain would be given by rectangle A less triangle B.The Market for Kidneys and the Effect of the National Organ Transplantation ActFigure 9.6Chapter 9: The Analysis of Competitive Markets11 of 28Copyright 2009 Pearson Education, Inc. Publishing
21、 as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.THE EFFICIENCY OF A COMPETITIVE MARKET9.2Supply: QS = 16,000 + 0.4PDemand: QD = 32,0000.4PIn practice, kidneys are often rationed on the basis of willingness to pay, and many recipients pay most or all of the $40,000 price that clears the market
22、 when supply is constrained. Rectangles A and D measure the total value of kidneys when supply is constrained.The Market for Kidneys and the Effect of the National Organ Transplantation Act (continued)Figure 9.6Chapter 9: The Analysis of Competitive Markets12 of 28Copyright 2009 Pearson Education, I
23、nc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.MINIMUM PRICES9.3Price is regulated to be no lower than Pmin. Producers would like to supply Q2,but consumers will buy only Q3.If producers indeed produce Q2, the amount Q2 Q3 will go unsold and the change in producer surplus will
24、be A C D. In this case, producers as a group may be worse off.Price MinimumFigure 9.7Chapter 9: The Analysis of Competitive Markets13 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.MINIMUM PRICES9.3Although the market-clearing wage is w0,
25、 firms are not allowed to pay less than wmin.This results in unemployment of an amount L2 L1and a deadweight loss given by triangles B and C.The Minimum WageFigure 9.8Chapter 9: The Analysis of Competitive Markets14 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomi
26、cs Pindyck/Rubinfeld, 7e.MINIMUM PRICES9.3At price Pmin, airlines would like to supply Q2, well above the quantity Q1 that consumers will buy. Here they supply Q3. Trapezoid D is the cost of unsold output.Airline profits may have been lower as a result of regulation because triangle C and trapezoid
27、D can together exceed rectangle A.In addition, consumers lose A + B.Effect of Airline Regulation by the Civil Aeronautics BoardFigure 9.9Chapter 9: The Analysis of Competitive Markets15 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.MINIM
28、UM PRICES9.3TABLE 9.1 Airline Industry Data1975198019851990199520002005 Number of Carriers366310270969490Passenger Load Factor54586162677278Passenger Mile Rate (Constant 1995 dollars).218.210.165.150.129.118.092Real Cost Index (1995 = 100)10112211110910010193Real Fuel Cost Index (1995 = 100)24930020
29、4163100125237Real Cost Index Corrected for Fuel Cost Changes717388951009667By 1981, the airline industry had been completely deregulated. Since that time, many new airlines have begun service, others have gone out of business, and price competition has become much more intense. Because airlines have
30、 no control over oil prices, it is more informative to examine a “corrected” real cost index which removes the effects of changing fuel costs.Chapter 9: The Analysis of Competitive Markets16 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.
31、PRICE SUPPORTS AND PRODUCTION QUOTAS9.4To maintain a price Ps above the market-clearing price P0, the government buys a quantity Qg.The gain to producers is A + B + D. The loss to consumers is A + B. The cost to the government is the speckled rectangle, the area of which is Ps(Q2 Q1).Prince Supports
32、Figure 9.10price support Price set by government above free market level and maintained by governmental purchases of excess supply.Total change in welfare: CS + PS Cost to Govt. = D (Q2 Q1)PsPrice SupportsChapter 9: The Analysis of Competitive Markets17 of 28Copyright 2009 Pearson Education, Inc. Pu
33、blishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.PRICE SUPPORTS AND PRODUCTION QUOTAS9.4To maintain a price Ps above the market-clearing price P0, the government can restrict supply to Q1, either by imposing production quotas (as with taxicab medallions) or by giving producers a financ
34、ial incentive to reduce output (as with acreage limitations in agriculture).For an incentive to work, it must be at least as large as B + C + D, which would be the additional profit earned by planting, given the higher price Ps. The cost to the government is therefore at least B + C + D.Supply Restr
35、ictionsFigure 9.11Welfare = A B + A + B + D B C D = B CProduction QuotasCS = A BPS = A C + Payments for not producing (or at least B + C + D)Chapter 9: The Analysis of Competitive Markets18 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.P
36、RICE SUPPORTS AND PRODUCTION QUOTAS9.41981 Supply: QS = 1800 + 240P1981 Demand: QD = 3550 266PTo increase the price to $3.70, the government must buy a quantity of wheat Qg.By buying 122 million bushels of wheat, the government increased the market-clearing price from $3.46 per bushel to $3.70.The W
37、heat Market in 1981Figure 9.121981 Total demand: QDT = 3550 266P + QgQg= 506P 1750Qg= (506)(3.70) 1750 = 122 million bushelsLoss to consumers = A B = $624 millionCost to the government = $3.70 x 112 million = $451.4 millionTotal cost of the program = $624 million + $451.4 million = $1075.4 millionGa
38、in to producers = A + B + C = $638 millionChapter 9: The Analysis of Competitive Markets19 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.PRICE SUPPORTS AND PRODUCTION QUOTAS9.41985 Supply: QS = 1800 + 240P1985 Demand: QD = 2580 194PIn 19
39、85, the demand for wheat was much lower than in 1981, because the market-clearing price was only $1.80.To increase the price to $3.20, the government bought 466 million bushels and also imposed a production quota of 2425 million bushels.The Wheat Market in 1985Figure 9.132425 = 2580 194P + QgQg= 155
40、 + 194PQg= 155 + 194($3.20) = 466 million bushelsCost to the government = $3.20 x 466 million = $1491 millionChapter 9: The Analysis of Competitive Markets20 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.IMPORT QUOTAS AND TARIFFS9.5In a
41、free market, the domestic price equals the world price Pw. A total Qd is consumed, of which Qs is supplied domestically and the rest imported. When imports are eliminated, the price is increased to P0. The gain to producers is trapezoid A. The loss to consumers is A + B + C, so the deadweight loss i
42、s B + C.Import Tariff or Quota That Eliminates ImportsFigure 9.14import quota Limit on the quantity of a good that can be imported.tariff Tax on an imported good.Chapter 9: The Analysis of Competitive Markets21 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pi
43、ndyck/Rubinfeld, 7e.IMPORT QUOTAS AND TARIFFS9.5When imports are reduced, the domestic price is increased from Pw to P*.This can be achieved by a quota, or by a tariff T = P* Pw. Trapezoid A is again the gain to domestic producers.The loss to consumers is A + B + C + D.If a tariff is used, the gover
44、nment gains D, the revenue from the tariff. The net domestic loss is B + C.If a quota is used instead, rectangle D becomes part of the profits of foreign producers, and the net domestic loss is B + C + D.Import Tariff or Quota (General Case)Figure 9.15Chapter 9: The Analysis of Competitive Markets22
45、 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.IMPORT QUOTAS AND TARIFFS9.5U.S. supply: QS = 7.48 + 0.84PU.S. demand: QD = 26.7 0.23PAt the world price of 12 cents per pound, about 23.9 billion pounds of sugar would have been consumed in
46、 the United States in 2005, of which all but 2.6 billion pounds would have been imported.Restricting imports to 5.3 billion pounds caused the U.S. price to go up by 15 cents.Sugar Quota in 2005Figure 9.16Chapter 9: The Analysis of Competitive Markets23 of 28Copyright 2009 Pearson Education, Inc. Pub
47、lishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.IMPORT QUOTAS AND TARIFFS9.5U.S. supply: QS = 7.48 + 0.84PU.S. demand: QD = 26.7 0.23PThe gain to domestic producers was trapezoid A, about $1.3 billion. Rectangle D, $795 million, was a gain to those foreign producers who obtained quota
48、allotments. Triangles B and C represent the deadweight loss of about $1.2 billion.The cost to consumers, A + B + C + D, was about $3.3 billion.Sugar Quota in 2005 (continued)Figure 9.16Chapter 9: The Analysis of Competitive Markets24 of 28Copyright 2009 Pearson Education, Inc. Publishing as Prentice
49、 Hall Microeconomics Pindyck/Rubinfeld, 7e.THE IMPACT OF A TAX OR SUBSIDY9.6Pb is the price (including the tax) paid by buyers. Ps is the price that sellers receive, less the tax.Here the burden of the tax is split evenly between buyers and sellers. Buyers lose A + B.Sellers lose D + C.The governmen
50、t earns A + D in revenue.The deadweight loss is B + C.Incidence of a TaxFigure 9.17specific tax Tax of a certain amount of money per unit sold.Market clearing requires four conditions to be satisfied after the tax is in place:QD = QD(Pb) (9.1a)QS = QS(Ps) (9.1b)QD = QS (9.1c)Pb Ps = t (9.1d)Chapter
