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3250:200 Lecture Notes - Lecture 7: Economic Surplus, Planned Economy, Laissez-Faire

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rosehound821
16 Nov 2017
School
University of Akron
Department
Economics
Course
3250:200
Professor
Amanda Weinstein

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Document Summary

Recall, the allocation of resources refers to how much of each good is produced, which producers produce it, which consumers consume it welfare economics- studies how the allocation of resources affects economic well being. Rst we look at the well being of consumers then we look at the well being of producers willingness to pay- the maximum amount the buyer will par for that good. Measures how much the buyer values the good. Is the amount a buyer is willing to pay inures the amount the buyer actually pays. ** use area when the demand increases ** When demand is inelastic, there is a greater potential consumer surplus because there are some buyers willing to pay a high price to continue consuming the product. Cost and the supply curve cost- is the value of everything a seller must give up to produce a good. Includes cost of all resources used to produce good including value of the seller"s time.

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Related Questions

The study of how the allocation of resources affects economic well-being is called
a. consumer economics.
b. macroeconomics.
c. willingness-to-pay economics.
d. welfare economics.

Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (In real life the actual price floor was officially set at $16.10 per hundredweight of cheese. One hundredweight is 100 pounds.) At that price, according to data from the USDA, the quantity of cheese produced in 2009 by U.S. producers was 212.5 billion pounds, and the quantity demanded was 211 billion pounds. To support the price of cheese on the price floor, the USDA had to buy up to 1.5 billion pounds of cheese. The accompanying diagram shows the supply and demand curves illustrating the market for cheese.

A. In the absence of a price floor, the maximum price that a few of the consumers are willing to pay is $0.20 for a pound of cheese whereas the market equilibrium price is $0.13 per pound. The graph also shows that the minimum price at which a few of the producers are willing to sell is $0.06 per pound. In the absence of a price floor, how much consumer surplus is created?

b. How much producer surplus?

c. What is the total surplus?

D. The maximum price that a few of the consumers are willing to pay is $0.20 per pound of cheese, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, consumers buy 211 billion pounds of cheese. How much consumer surplus is created now?

E. The minimum price at which a few of the producers are willing to sell a pound of cheese is $0.06, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, producers sell 212.5 billion pounds of cheese (some to consumers and some to the USDA). How much producer surplus is created now?

F. The surplus cheese USDA buys is the difference between the number of cheese producers sell (212.5 billions pounds of cheese) and the number of cheese consumers is willing to buy at the price floor (211 billions pounds of cheese). How much money does the USDA spend on buying up surplus cheese?

G. Taxes must be collected to pay for the purchases of surplus cheese by the USDA. As a result, the total surplus (producer plus consumer) is reduced by the amount the USDA spent on buying surplus cheese. Using your answers for parts d, e, and f, what is the total surplus when there is a price floor?

H. How does this compare to the total surplus without a price floor from part c?

Ā 

There are two types of consumers or vacationers of a monopoly hotel in a resort town: type 1, of which there are 300 consumers willing to pay V1 = $600 per day; and type 2, of which there are 500 consumers, willing to pay V2 = $200 per day. The daily unit cost of serving a consumer is $50 per day, plus there is a fixed cost of $5,000 per day.

a. What price will the hotel set and how many consumers will be served? What is the hotel's daily profit and what is consumer surplus?

b. Suppose a marketing campaign targeted to type 2 consumers can raise their willingness to pay to $350 per night. What is the maximum amount that the hotel would pay per day to run the campaign? If the campaign costs less than this amount and the firm engages in it what is the effect on consumer surplus?

c. Now suppose that there are 850 consumers willing to pay V2 = $200 per day. Everything else is the same. How do your answers to a) and b) change in this case?