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Lecture 14

ECON 101 Lecture Notes - Lecture 14: Tax Wedge, Marginal Cost, Demand CurvePremium

4 pages57 viewsWinter 2015

Department
Economics
Course Code
ECON 101
Professor
Marina Adshade
Lecture
14

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ECON 101 - Lecture #14 - Producer Surplus, Market Efficiency, and Quantity of Tax
Producer Surplus
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
function
Table 1. The seller costs of an imagined comic bookstore market.
Person Cost ($)
Andrew 5
Betty 15
Carlos 25
Donna 35
Englebert 45
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 =
demand curve
Using this graph, we could calculate producer surplus
At $32, what is producer surplus?
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