ECON 11 Lecture Notes - Lecture 10: Deadweight Loss, Sales Tax, Demand Curve
Document Summary
Consumer and producer surplus examples: assume that the government guarantees farmers a minimum price of p*. It does so by buying up and storing any surplus wheat that may exist at that price. For the example below, the government is buying up and storing (qs-qd). The nature of this deadweight loss means that some alternative p1 g arrangment can make each group better off. For example, buyers e f and taxpayers can offer bribes to sellers to remove this program. Buyers might offer a bribe of b+0. 5c (which is less than bc), Taxpayers might offer a bribe of . 5c+d+ . 5f (which is < than h i j. Farmers would receive a total amount of bcd+. 5f d1 (which exceeds bcd). Government pays farmers to only produce qd bushels. Qs at p*, then ps would be bcdef. Therefore, if farmers voluntarily restricted production to qd, they would lose cdf.
