2017 Isb Market Efficiency Price Ceiling Price Floor
Autor: Maryam • November 8, 2018 • 837 Words (4 Pages) • 820 Views
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Price Ceiling
Price[pic 10]
[pic 11]
[pic 12]
A[pic 13]
X[pic 14][pic 15][pic 16][pic 17]
B C
PC[pic 18][pic 19]
D E F G L
PCL[pic 20]
H J K
I[pic 21]
Q QC QCL Quantity
CSComp = A + B + C, PSComp = D + E + H, SWComp = A + B + C + D + E + H
What if only Q produced?
CSCL = A + B + D if only the highest reservation price consumers are allowed to buy—less if consumers from X to PCL allowed to buy
PSCL = H
SWCL = A + B + D + H—this is a max
DWL = CSComp – CSCL C + E
What if gov’t paid the producers their costs of producing the additional QCL – Q units the demanders want at price PCL, i.e., J + K + F + G + L.
CSCL = A + B + C + D + E + F + G
PSCL = [TR] – {VC} = [H + I + J + K + (J + K + F + G + L)] – {I + J + K + L + F + G}=H+J+K
Gov’t Subsidy = F + G + J + K + L
SWCL = A + B + C + D + E + F + G + H + J + K – (F + G + J + K + L)
= A + B + C + D + E + H – L
SWComp – SWCL = A + B + C + D + E + H – (A + B + C + D + E + H – L) = L
L = DWL. The QCL – QC units produced beyond the competitive outcome are values by consumers at G + K whereas they cost G + K + L to produce. Thus the benefits (G + K) are exceeded by the costs (G + K + L) by amount L
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