Quản trị kinh doanh - Chapter 10: Competitive markets: Applications

1Competitive Markets: ApplicationsChapter 10Copyright (c)2014 John Wiley & Sons, Inc.2Chapter Ten OverviewMotivation: Agricultural Price SupportsDeadweight LossA Perfectly Competitive Market Without Intervention Maximizes Total Surplus"Government Intervention – Who Wins and Who Loses?Examples of Various Government PolicesExcise TaxesPrice Ceilings and FloorsProduction QuotasImport Tariffs ConclusionsChapter TenCopyright (c)2014 John Wiley & Sons, Inc.3Chapter TenDefinition: Economic Efficiency means that the total surplus is maximized."Every consumer who is willing to pay more than the opportunity cost of the resources needed to produce extra output is able to buy; every consumer who is not willing to pay the opportunity cost of the extra output does not buy.“ "All gains from trade (between buyers and suppliers) are exhausted at the efficient point."The perfectly competitive equilibrium attains economic efficiency.Economic EfficiencyNote:Copyright (c)2014 John Wiley & Sons, Inc.4DemandSupplyQPQ*P*ABCDQ1PdPsChapter TenSurplus Maximization in Competitive EquilibriumFGECopyright (c)2014 John Wiley & Sons, Inc.5Chapter TenAt the Perfectly Competitive Equilibrium, (Q*,P*), Total Surplus is maximized.Consumer's Surplus at (Q*,P*): ABCProducer's Surplus at (Q*,P*) : DBCTotal Surplus at (Q*,P*): ADCSurplus Maximization in Competitive EquilibriumCopyright (c)2014 John Wiley & Sons, Inc.6Chapter TenDeadweight LossDefinition: A deadweight loss is a reduction in net economic benefits resulting from an inefficient allocation of resources.Consumer's Surplus at (Q1,Pd): AEFProducer's Surplus at (Q1,Pd) : EFGDTotal Surplus at (Q1,Pd): AFGDDeadweight Loss at (Q1,Pd): AFCCopyright (c)2014 John Wiley & Sons, Inc.7Intervention TypeEffect on (domestic)quantity tradedEffect on (domestic)Consumer SurplusEffect on (domestic)Producer SurplusEffect on (domestic)Government BudgetIs a (domestic) Deadweight Loss created?Excise TaxFallsFallsFallsPositiveYesSubsidies toProducersRisesRisesRisesNegativeYesMaximum PriceCeilings for ProducersFalls; ExcessDemandRise or FallFallsZeroYesMinimum PriceFloors forProducersFalls;ExcessSupplyFallsRise or FallZeroYesProductionQuotas Falls;ExcessSupplyFallsRise orFallZeroYesImport TariffsFallsFallsRisesPositiveYesImport QuotasFallsFallsRisesZeroYesChapter TenGovernment Intervention: Winners & LosersCopyright (c)2014 John Wiley & Sons, Inc.8Chapter TenPolicy: Excise TaxDefinition: An excise tax (or a specific tax) is an amount paid by either the consumer or the producer per unit of the good at the point of sale. (The amount paid by the demanders exceeds the total amount received by the sellers by amount T)Copyright (c)2014 John Wiley & Sons, Inc.9Chapter TenPolicy: Excise TaxCopyright (c)2014 John Wiley & Sons, Inc.10Chapter TenPolicy: Excise TaxWith No TaxWith TaxImpact of TaxConsumer SurplusA + B + C + EA- B - C - EProducer SurplusF + G + HH- F - GGovernment Receipts from TaxZeroB + C + GB + C + GNet BenefitsA + B + C + E + F + G + HA + B + C + G + H- E – FDeadweight LossZeroE + FE + FCopyright (c)2014 John Wiley & Sons, Inc.11Chapter TenKey DefinitionsDefinition: The amount by which the price paid by buyers, Pd, rises over the non-tax equilibrium price, P*, is the incidence of the tax on consumers; the amount by which the price received by sellers, Ps, falls below P* is called the incidence of the tax on producers.Definition: Incidence of a tax is a measure of the effect of a tax on the prices consumers pay and sellers receive in a market.Copyright (c)2014 John Wiley & Sons, Inc.12DDQQPPSS’TSTPs = P*Pd=P*+TPd = P*Ps = P*-TChapter TenIncidence of Tax in Two Extreme CasesCase ICase IICopyright (c)2014 John Wiley & Sons, Inc.13Chapter TenIncidence of Tax in Two CasesCopyright (c)2014 John Wiley & Sons, Inc.14Chapter TenBack of the Envelope"Back of the Envelope" method to calculate the incidence of a specific taxPd/Ps = /where:  is the own-price elasticity of supply  is the own-price elasticity of demandCopyright (c)2014 John Wiley & Sons, Inc.15Chapter TenWhy – consider a small tax applied to an economy at point (Q*,P*) =(Q/Q*)/(Pd/P*) Q/Q*=Pd/P* =(Q/Q*)/(Ps/P*) Q/Q*=Ps/P*but for market to clear, Q/Q* must be the same for demand and supply, hencePd/P* = Ps/P*Back of the EnvelopeCopyright (c)2014 John Wiley & Sons, Inc.16Chapter TenExample: Let  = -.5 and  = 2. What is the relative incidence of a specific tax on consumers and producers?Pd/Ps = 2/-.5 = -4interpretation: "consumers pay four times as much as the decrease in price producers receive. Hence, an excise tax of $1 results in an increase in consumer price of $.8 and a decrease in price received by producers of $.2"Note: Subsidies are negative taxes.Tax EffectCopyright (c)2014 John Wiley & Sons, Inc.17Chapter TenSubsidiesCopyright (c)2014 John Wiley & Sons, Inc.18Chapter TenSubsidiesWith No SubsidyWith SubsidyImpact of SubsidyConsumer SurplusA + BA + B + E + G + K- B - C - EProducer SurplusE + FB + C + E + F- F - GImpact on Government BudgetZero- B - C - E - G - K - JB + C + GNet BenefitsA + B + E + FA + B + E + F – J- E - FDeadweight LossZeroJJCopyright (c)2014 John Wiley & Sons, Inc.19Chapter TenPolicy: Price CeilingsDefinition: A price ceiling is a legal maximum on the price per unit that a producer can receive. If the price ceiling is below the pre-control competitive equilibrium price, then the ceiling is called binding.Copyright (c)2014 John Wiley & Sons, Inc.20Chapter TenPolicy: Price CeilingsCopyright (c)2014 John Wiley & Sons, Inc.21Chapter TenPolicy: Price CeilingsWith No Price CeilingWith Price CeilingWith Maximum Consumer SurplusWith Minimum Consumer SurplusConsumer SurplusArea YAVArea YTWSArea URXProducer SurplusArea AVZArea SWZArea SWZNet BenefitsArea YZVArea YTWZAreas URX + SWZDeadweight LossZeroArea TWVArea YZV – Area URX – Area SWZCopyright (c)2014 John Wiley & Sons, Inc.22Chapter TenPolicy: Price FloorDefinition: A price floor is a minimum price that consumers can legally pay for a good. Price floors sometimes are referred to as price supports. If the price floor is above the pre-control competitive equilibrium price, it is said to be binding.Copyright (c)2014 John Wiley & Sons, Inc.23Chapter TenPolicy: Price FloorCopyright (c)2014 John Wiley & Sons, Inc.24Chapter TenPolicy: Price FloorWith No Price FloorWith Price FloorWith Maximum Producer SurplusWith Minimum Producer SurplusConsumer SurplusArea YAVArea YTRArea YTRProducer SurplusArea AVZArea RTWZArea MNVNet BenefitsArea YZVArea YTWZAreas YTR + MNVDeadweight LossZeroArea TWVArea YZV – Area YTR – Area MNVCopyright (c)2014 John Wiley & Sons, Inc.25Chapter TenPolicy: Production QuotasDefinition: A production quota is a limit on either the number of producers in the market or on the amount that each producer can sell. The quota usually has a goal of placing a limit on the total quantity that producers can supply to the market. Copyright (c)2014 John Wiley & Sons, Inc.26Chapter TenPolicy: Production QuotasCopyright (c)2014 John Wiley & Sons, Inc.27Chapter TenPolicy: Production QuotasWith No QuotaWith QuotaImpact of QuotaConsumer SurplusA + B + FF- A - BProducer SurplusC + EA + EA - CNet BenefitsA + B + C + E + FA + E + F- B - CDeadweight LossZeroB + CB + CCopyright (c)2014 John Wiley & Sons, Inc.28Chapter TenPolicy: Import Tariffs & QuotasDefinition: Tariffs are taxes levied by a government on goods imported into the government's own country. Tariffs sometimes are called duties.Definition: An import quota is a limit on the total number of units of a good that can be imported into the country.Copyright (c)2014 John Wiley & Sons, Inc.29Chapter TenPolicy: Import QuotasCopyright (c)2014 John Wiley & Sons, Inc.30Chapter TenPolicy: Import QuotasFree Trade (with no quota)With QuotaImpact of QuotaTrade Prohibition (quota = 0)Quota = 3 Million Units per yearImpact of Trade ProhibitionImpact of Quota = 3 Million Units per yearConsumer SurplusA + B + C + E + F + G + H + J + KAA + B + C + E- B - C - E - F - G - H - J – K- F - G - H - J - KProducer SurplusLB + F + LF + LB + FFNet BenefitsA + B + C + E + F + G + H + J + K + LA + B + F + LA + B + C + E + F + L- C - E - G - H - J - K- G - H - J - KDeadweight LossZeroC + E + G + H + J + KG + H + J + KC + E + G + H + J + KG + H + J + KProducer Surplus (foreign)ZeroZeroH + JZeroH + JCopyright (c)2014 John Wiley & Sons, Inc.31Chapter TenPolicy: Import TariffsCopyright (c)2014 John Wiley & Sons, Inc.32Chapter TenPolicy: Import TariffsFree Trade (with no tariff)With TariffImpact of TariffConsumer SurplusA + B + C + E + F + G + H + J + KA + B + C + E- F - G - H - J - KProducer SurplusLF + LFImpact on Government BudgetZeroH + JH + JNet BenefitsA + B + C + E + F + G + H + J + K + LA + B + C + E + F + L- G - H - J – KDeadweight LossZeroG + KG + KProducer Surplus (foreign)ZeroZeroZeroCopyright (c)2014 John Wiley & Sons, Inc.33Chapter TenComparing a Tariff to a QuotaLet quota limit imports to Q3-Q2the equilibrium price would be the same as for the tariffand the (world) deadweight loss would be the same as well.Is there a difference? The quota generates no government revenue. Hence, while the total supply and total price for the domestic market remains the same under the two policies, domestic deadweight loss is larger under the quota.Copyright (c)2014 John Wiley & Sons, Inc.