Consumer and Producer Surplus. Market Reaction to Government Intervention. Излишек потребителя и производителя. Реакция рынка на вмешательство правительства.
I
ndividual
consumer surplus
is the net gain to an individual buyer from the purchase of a good.
It is equal to the difference between the buyer’s willingness to
pay and the price paid. Total
consumer
surplus
is the sum of the individual consumer surpluses of all the buyers of
a good. It is often important to know how much consumer surplus
changes when the price changes.
I
ndividual
producer
surplus
it is equal the difference between the price received and the
seller’s cost.
Total producer
surplus
is the sum of the individual producer surpluses of all the suppliers
of a good. If the price of a good rises, producers of the good will
experience an increase in producer surplus, though not all producers
gain the same amount
The maximum possible total surplus is achieved at market equilibrium. It ensures that every potential buyer who doesn’t make a purchase values the good less than every potential seller who doesn’t make a sale, so that no mutually beneficial transactions are missed.
Government intervention.
The market price moves to the level at which the quantity supplied equals the quantity demanded. BUT this equilibrium price does not necessarily please either buyers or sellers. Therefore, the government intervenes to regulate prices by imposing price controls.
P
rice
ceiling
is the maximum price sellers are allowed to charge for a good or
service. Inefficiencies:
#1:
Shortages That Get Worse over Time. #2: Inefficient Allocation to
Consumers:
Price ceilings often lead to inefficiency in the form of inefficient
allocation to consumers: people who want the good badly don’t get
it, while those who care relatively little about the good do get it.
#3:
Wasted Resources:
Price ceilings typically lead to inefficiency in the form of wasted
resources: people spend money and expend effort in order to deal with
the shortages caused by the price ceiling. #4:
Inefficiently Low Quality:
sellers offer low-quality goods at a low price even though buyers
would prefer a higher quality at a higher price. #5:
Black Markets:
A black market is a market in which goods or services are bought and
sold illegally—either because it is illegal to sell them at all or
because the prices charged are prohibited by a price ceiling.
Price
floor
is the minimum price buyers are required to pay for a good or service
(minimum
wage).
Inefficiencies:
#1:
Surplus production:
When the government is not prepared to purchase the unwanted surplus,
a price floor means that would-be sellers cannot find buyers. #2:
Inefficient Allocation Of Sales Among Sellers:
Price floors lead to inefficient allocation of sales a
mong
sellers: those who would be willing to sell the good at the lowest
price are not always those who manage to sell it. #3:
Wasted Resources.
In this case, however, it is sellers who must waste time and effort
searching for a buyer. #4:
Inefficiently High Quality:
sellers offer high-quality goods at a high price, even though buyers
would prefer a lower quality at a lower price. #5:
Illegal Activity
Finally, like price floors, price ceilings can provide an incentive
for illegal activity only in this case it is sellers who will be
bribing buyers.
A
quantity
control,
or quota,
is an upper limit on the quantity of some good that can be bought or
sold. The total amount of the good that can be legally transacted is
the quota
limit.
A license
gives its owner the right to supply a good. A quantity control, or
quota, drives a wedge
between the demand price and the supply price of a good; that is, the
price paid by buyers ends up being higher than that received by
sellers. Inefficiencies:
1) Inefficiencies, or missed opportunities, in the form of mutually
beneficial transactions that don’t occur; 2) Incentives for illegal
activities