BÀI 4 The Efficiency of Markets

&
Government Interventions

Lecturer:
Dr. Phạm Quang Anh Thư

Department: Economics HCMC Open University Micoreconomics

NỘI DUNG CHÍNH

1. Consumer Surplus - CS (link)
2. Producer Surplus - PS (link)
3. Direct Intervention: Price Control: (link)
Ø Price ceiling
Ø Price floor
4. Indirect Intervention: (link)
Ø Tax
Ø Subsidices
5. CS và PS trong phân tích tác động sự can thiệp của
chính phủ (link)

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Thặng dư tiêu dùng - CS

• A buyer’s willingness to pay for a good is the

maximum amount the buyer will pay for that good.
• WTP measures how much the buyer values the good
• Consumer surplus is the amount a buyer is willing to
pay minus the amount the buyer actually pays:
CS = WTP – P

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 Consumer Surplus (CS)

Consumer surplus is the amount a buyer is willing to

pay minus the buyer actually pays:

CS = WTP – P

name WTP
Anthony $250
Chad 175
Flea 300
John 125

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CS with Lots of Buyers & a Smooth D Curve

P
$60
50
h
40
30
20
10
D
0 Q
0 5 10 15 20 25 30
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How a Higher Price Reduces CS

P
1. Fall in CS
60 due to
50 buyers
leaving
40 market
30

2. Fall in CS due 20
to remaining
10
buyers D
paying higher 0 Q
P
0 5 10 15 20 25 30

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 demand curve
P
50
A. Find marginal $45
buyer’s WTP at 40
Q = 10. 35
B. Find CS for 30
P = $30. 25
Suppose P falls to $20. 20
How much will CS
15
increase due to…
10
C. buyers entering 5
the market
0
D. existing buyers
0 5 10 15 20 Q
25
paying lower price
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Cost and the Supply Curve

• Cost is the value of everything a seller must give up

to produce a good (i.e., opportunity cost).
• Includes cost of all resources used to produce good,
including value of the seller’s time.
• Example: Costs of 3 sellers in the lawn-cutting
business.
A seller will only produce and
name cost sell the good if the price
exceeds his or her cost.
Angelo $10
Hence, cost is a measure of
Hunter 20 willingness to sell.
Kitty 35
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Cost and the Supply Curve

P Qs
Derive the supply
schedule from the cost $0 – 9 0
data: 10 – 19 1

20 – 34 2
name cost
35 & up 3
Angelo $10
Hunter 20
Kitty 35

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 PS with Lots of Sellers & a Smooth S Curve

P
60
50 S
40
30
h
20
10
0 Q
0 5 10 15 20 25 30

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How a Lower Price Reduces PS

P 1. Fall in PS
due to sellers
60
leaving market
50 S

40
30

2. Fall in PS due 20
to remaining
10
sellers
getting lower P 0 Q
0 5 10 15 20 25 30

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supply curve
P
50
A. Find marginal
seller’s cost 45
at Q = 10. 40
B. Find PS for 35
P = $20. 30
Suppose P rises to 25
$30.
20
Find the increase
in PS due to… 15
C. selling 5 10
additional units 5
D. getting a higher 0
price on the initial Q
0 5 10 15 20 25
10 units
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 What do CS, PS, and Total Surplus Measure?

• CS = (value to buyers) – (amount paid by buyers)

CS measures the benefit buyers receive
from participating in the market.

• PS = (amount received by sellers) – (cost to sellers)

PS measures the benefit sellers receive
from participating in the market.

• Total surplus = CS + PS
TS measures the total gains from trade in a
market.

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Tổng thặng dư thị trường (back)

Price
Consumer
Surplus
S

Producer
Surplus

QD QS Q0 Quantity

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Price control

• Price ceiling: a legal maximum on the price

of a good or service Example: rent control
• Price floor: a legal minimum on the price of
a good or service Example: minimum wage

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 GIÁ TRẦN

P($) QD QS

1 130 50

2 110 70

3 90 90

4 70 110

5 50 130

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How Price Ceilings Affect Market Outcomes

P S

$800

Price
$500
ceiling
shortage
D
Q
150 450

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Price Control and Surplus Changes

Price

B
P0
A C

Pmax

Q1 Q0 Q2

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 Price Controls With Inelastic Demand

D
Price

P0
A C
Pmax

Q1 Q2 Quantity

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• Are Rent Ceilings Fair?

• According to the fair rules view, a rent ceiling is unfair
because it blocks voluntary exchange.
• According to the fair results view, a rent ceiling is unfair
because it does not generally benefit the poor.
• A rent ceiling decreases the quantity of housing and the
scarce housing is allocated by
Ø Lottery
Ø First-come, first-served
Ø Discrimination

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PRICE FLOOR

Price
QD QS
($)

1 130 50

2 110 70

3 90 90

4 70 110

5 50 130

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 Minimum Prices

Example
Price

Pmin
A
B
P0
C

D
Q3 Q0 Q2 Quantity

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The Minimum Wage

wmin
A
w0 B
C

Unemployment
D
L1 L0 L2 L

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Taxes
• The govt levies taxes on many goods & services to raise
revenue to pay for national defense, public schools, etc.
• The govt can make buyers or sellers pay the tax.
• The tax can be a % of the good’s price,
or a specific amount for each unit sold.

For simplicity, we analyze per-unit taxes only.

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 THUẾ
S1
P

t = $2 S0
$5

$4

$3

$2
D
$1

50 70 90 110 130 Q

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Ứng dụng CS & PS vào phân tích thuế

S tax
P
S

$4

$3

$2

2 3 Q 26
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Taùc ñoäng cuûa thueá ñaùnh theo ñôn vò saûn phaåm

PD1
A
B
P0
C t D

P S1

Q
Q1 Q0

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 P
$ 400
350
300
S
250
P = 200
150
D
100
50
0 Q
0 25 50 75 100 125
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A $100 tax on
airplane tickets
P
$ 400

350
300
S
PB = 250

200
PS = 150
D
100
50
0 Q
0 25 50 75 100 125
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Taùc ñoäng cuûa thueá & ñoä co giaõn

P D P
Tax burden falls on buyer S

PD1

S
t PD1
P0 P0
PS1
t
D

PS1 Tax burden falls on seller

Q1 Q0 Q Q1 Q0 Q

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 Subsidies

P S

PS1
A B
P0 E s
C
D
PD1

Q
Q0 Q1

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Bài tiếp theo:

CONSUMER BEHAVIOR

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