Microeconomics

Leeds, von Allmen and Schiming

Chapter 6, Market Efficiency

1. Consumer Surplus

   1. Price, willingness to pay and consumer's marginal benefit

   2. The marginal consumer

   3. Calculating consumer surplus

2. Producer surplus

   1. Price, willingness to sell, and producer's marginal cost

   2. Calculating producer surplus

3. Economic surplus

   1. Pareto Efficiency

   2. The gain from exchange

   3. Consumer surplus + producer surplus

4. Maximizing economic surplus

   1. Function of price

      1. Rationing available goods among buyers

      2. Allocating (directing) inputs to their most profitable use

   2. Assumptions

      1. Large numbers

      2. Government intervention

      3. Easy entry and exit

         1. Profit as an incentive

         2. Profit versus economic rent

      4. Market imperfections

         1. Monopoly

         2. Externalities

         3. Public Goods

5. Economic surplus and taxes

   1. Taxes: ad valorum and excise

   2. Equilibrium with a tax imposed on the seller

   3. Who bears the burden of the tax?

   4. Elasticity and tax incidence

   5. Consumer and producer surplus with the tax

   6. Income redistribution and the tax

   7. Deadweight loss

   8. Rationale for taxes

      1. Raising revenue

      2. To decrease activities people pursue in excess

6. Government Intervention: The cost of preventing price adjustments

   1. Price floor

   2. Price ceiling

   3. Quota

      1. Taxi cab medallions in New York

   4. Alternatives to allocation and rationing via price adjustments

      1. First come - first served

      2. Lottery