ECON 101 Lecture Notes - Lecture 14: Tax Wedge, Marginal Cost, Demand CurvePremium
4 pages57 viewsWinter 2015
Course CodeECON 101
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ECON 101 - Lecture #14 - Producer Surplus, Market Efficiency, and Quantity of Tax
● The difference between what a producer receives from trade and the minimum amount
the producer is willing to accept is called the producer surplus
● Consider an imagined market, as presented in Table 1
○ Seller costs = the minimum price sellers are able to accept = marginal cost
Table 1. The seller costs of an imagined comic bookstore market.
Person Cost ($)
● If we analyze the table, we can conclude that
○ When price is greater than 45, five people will sell
○ When price is greater than 35 but under 45, four people will sell
○ When price is greater than 25 but under 35, three people will sell
○ When price is greater than 15, but under 25, two people will sell
○ When price is greater than 5, but under 15, one person will sell
○ When price is under 5, nobody will sell
● With that, a graph could be produced, as presented by Figure 1
Figure 1. The graph of the marginal cost function for the imagined comic books market.
● The marginal cost function is the same as supply curve
○ Only works if the market is perfectly competitive
○ On the other hand, marginal willingness to buy curve = marginal benefit curve =
● Using this graph, we could calculate producer surplus
● At $32, what is producer surplus?
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