Economics

Topics: Economics, Supply and demand, Price ceiling Pages: 18 (1741 words) Published: November 17, 2013
Chapter

4
Economic Efficiency,
Government Price
Setting, and Taxes

Prepared by:

Fernando & Yvonn Quijano
© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION.

Should the Government
Control Apartment Rents?
Learning Objectives
4.1 Distinguishing between the concepts
of consumer surplus and producer
surplus.
4.2 Understand the concept of economic
efficiency.
4.3 Explain the economic effect of
government imposed price ceilings
and price floors.
4.4 Analyze the economic impact of taxes.
New York City has two
million apartments, about
one million of which are
subject to rent control.
The other one million
apartments have their
rents determined in the
market by the demand
and supply for
apartments.

APPENDIX Use quantitative demand
and supply analysis.

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION.

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Economic Efficiency, Government Price Setting,
and Taxes

Price ceiling A legally
determined maximum price
that sellers may charge.
Price floor A legally
determined minimum price
that sellers may receive.

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Learning Objective 4.1

Consumer Surplus and Producer Surplus

4.1

Consumer Surplus
Consumer surplus
The difference between the
highest price a consumer is
willing to pay and the price the
consumer actually pays.
Marginal benefit
The additional benefit to a
consumer from consuming one
more unit of a good or service.

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Learning Objective 4.1

Consumer Surplus and Producer Surplus
Consumer Surplus
FIGURE 4-1
Deriving the Demand
Curve for Chai Tea

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Learning Objective 4.1

Consumer Surplus and Producer Surplus
Consumer Surplus
FIGURE 4-2
Measuring Consumer Surplus

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Learning Objective 4.1

Consumer Surplus and Producer Surplus
Consumer Surplus
FIGURE 4-3
Total Consumer Surplus
in the Market for Chai Tea

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Learning Objective 4.1

Making The Consumer Surplus from
the
Satellite Television
Connection

Consumer surplus allows us to measure the benefit consumers
receive in excess of the price they paid to purchase a product.

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Learning Objective 4.1

Consumer Surplus and Producer Surplus
Producer Surplus
Marginal cost The additional
cost to a firm of producing one
more unit of a good or service.
Producer surplus The difference
between the lowest price a firm
would be willing to accept and the
price it actually receives.

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Learning Objective 4.1

Consumer Surplus and Producer Surplus
Producer Surplus
FIGURE 4-4
Calculating Producer Surplus

© 2009 Prentice Hall Business Publishing Economics Hubbard/O’Brien UPDATE EDITION

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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Learning Objective...
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