ECON 200 Lecture Notes - Lecture 11: Deadweight Loss

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crimsonhorse758

6 Nov 2018

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Department

Economics

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ECON 200

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Haideh Salehi-Esfahani

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ECON 200 Full Course Notes

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Summary of the relative elasticity of demand and supply curves. Short run vs long run (demand is relatively elastic over the long run) Short run vs long run (supply is relatively elastic over the long run) The supply curve in market that is highly competitive is relatively elastic compared to the supply curve in a market with little competition. Consider a supply and demand graph for car license plates, and a s and d graph for cars. Example 3: analysis of interrelated markets: the effect of a tax on steel (tax on suppliers) Consider the market for steel below where q1 and p1 are the equilibrium quantity and price of steel per month. Part a: now suppose the government imposes a tax of 10 per ton on suppliers of steel. Note that steel is an input into the production of cars. The price of cars will go up and there will be fewer cars sold in this country.

Related Questions

Suppose the government places a per-barrel unit tax on suppliers of oil. The oil market has a positively sloped supply curve and a negatively sloped demand curve. Who will bear the economic incidence (burden) of this tax? A. The suppliers of oil will bear the entire burden. B. If supply is relatively more price elastic than demand, then suppliers will bear most of the burden. C. If supply is relatively more price elastic than demand, then consumers will bear most of the burden. D. The consumers of oil will bear the entire burden. E. Suppliers and consumers will share the burden equally,

14. Canada has a competitive domestic market for steel and currently bars imports. The domestic market inverse demand curve for steel is p = 300 - 9 and the domestic inverse supply curve is p = 29. a. Find the domestic market equilibrium price and quantity assuming no imports or exports of steel are allowed. Calculate the resulting consumer surplus, producer surplus, and total surplus in the domestic market. Show clearly on a diagram. (5 marks) b. Now assume Canada decides to allow imports of steel and that the import inverse supply curve is p = q (i.e., this function describes the quantity of steel that would be imported as a function of the price in the domestic (i.e., Canadian market). Find the new equilibrium price, the amount of steel sold by domestic firms, and the amount of steel imported. Also calculate the resulting domestic producer surplus, domestic consumer surplus, and domestic total surplus. Show clearly on a diagram. (5 marks) c. Does barring imports of steel into Canada create a deadweight loss? Explain with a diagrant. (4 marks)

When analyzing demand and supply, it is important to distinguish between the short run and the long run. In other words, if we ask how much demand or supply changes in response to a change in price, we must be clear about how much time is allowed to pass before measuring the changes in the quantity demanded or supplied. In general, short-run demand and supply curves look very different from their long-run counterparts. Consider two goods: cars and burgers.

Would you expect the price elasticity of demand for cars to be larger in the short-run or the long-run? Why?

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ECON 200 Lecture Notes - Lecture 11: Deadweight Loss

ECON 200 Full Course Notes

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