P consumer

"I
S S

the
thin
"II I I.-eerman
a
producer
surplus

Q
: D
Q
Qy Qy
Gov't Intervention

p ceiling:shortage P
floors:surplus
excess supply:
S= MC S= MC
Surplus

to
Pf---- - - - - -

&

com
Pe- -

"merture"is
- -

loss

D: MB
Q
Re QI
Qe Q2

indirect tax 1.t Welfare loss

S2 (6, + + Cx) S2 (6, + + Cx)

P you't P consumer surplus

Vistae
revenue the tox
S: MC
After
-

+.....· PC

Im
consumer
gov't revenue;
Beprotecteidn- Py from
Wh
- -
-

pp-..--"
↓ CX

D
Q
aster the
"F or
producersurplus

DM i
Qt Q7 Ot Q,

stesistin allocative efficiency is achieved

P
S1=MC
P
= MPC: MSC
S2 =3.
subsidy
-

Pp - - - -

gain in
I

I
producer surplus
W)l
Cy
------
i
I
gain in
I
Popt-----
"T
consumer surplus
IC...---

F D: MB
i
Q D1) = MPB=MJB
Q Qs1
Q
Qopt

tips for externalities:

2. MSC =
5 and MSB =
D
:
always begin with these

2. Production manipulates MPC

because it is what it costs the
firm.

3.
Consumption manipulates MPB
because it is now the individual
consumer
gains.
negative externalities of positive externalities of
PRODUCTION PRODUCTION

(potential)
Pa welfare
lOS]
MSC Pa welfare
gain
MP<MSC

iin" _iTE
MPC
a

By
: : :
:

it :::
P2
:

A
p MSB = MPB MSB = MPB
>Q >Q
Q2 Qy

externalities of
negative positive externalities of
CONSUMPTION CONSUMPTION

Pa MSC= MPC Pa
d welfare MSC: MPC

Emm
& Welfiree
::::
↓ MPB
MSB
>
:_:=
ETTTd Mp MSB

"
> Qs Q2 Q,

shut down rule

P
natural
monopoly D

L
pe------------
-
long run any cost

Re Q

TO+p1 los) > TVC

 Paper 3 type
-

taxation example

Government Revenue consumer expenditure post taxation

p p
52 52
P4 -
-
-
_ _ _
_ - -
, P4 -
-
-
_ _ _
_ - -
,

I 1
I
Sy I
Sy
I 1
Pc - - - - -
i Pc -

"
- - -
- -
-

b :c :c
'

GA 't a
i b ,
Pe - -

pep
-

f - - -

,
Pe - - - - -

f - - -

,
f e id i f e id i

pp -
-
- - - -

I h I pp -
-
- - - -

I h I
9 , i D 9 , i D
Q Q

producer revenue
post tax
change in consumer surplus
p p
52 52
P4 -
-
-
_ _ _
_ - -
, P4 -
-
-
_ _ _
_ - -
,

I 1
I
Sy I
Sy
I 1
Pc - - - - -
l Pc
i
- - -
- - -
_

a
i i a
i
b ' c
, b ' c
,
Pe - - - - -
1- - - -
Pe - - - - -
l - - -

f e id t f e
'
id
,
i

pp -
-
- - - -

I h I pp -
-
- - - -

I h I
9 , i D 9 , i D
Q Q

in
change producer surplus
welfare loss

p p
52 52
P4 -
-
-
_ _ _
_ - -
P4 -
-
_

i
- _ _ _ _
_

,
I
Sy I
Sy
I 1
Pc - - - - -
l Pc
i
- - -
- - -
_

a
i i a
i
b ' c
, b ' c
,
Pe - - - - -
1- - - -
Pe - - - - -
1- - - -

,
f e
'
id i f e ! d t
pp -
-
- - - -

I h I pp -
-
- - - -

I h I
9 , i D 9 , i D
Q Q
monopoly diagrams
↳ allocative
efficiency :P (AR)
=
MC ¥
•
for a monopoly , at ME MR (profit may point ,
P > MC allocative
, ly inefficient .

monopolists under produce goods in order to maximise

profits
•

↳
productive efficiency :p = minimum Atc
µ
for a at ME MR /profit mat) this is not the point of min A -1C
monopoly at
•

,
,

productively inefficient
.

. .

monopolists under produce goods in order to maximise

profits
•
.