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Theory Application In Competitive Markets

Theory Application In Competitive Markets. One the remarkable features of a perfectly competitive market: - in equilibrium. - a competitive market allocates resources efficiently. Excise Taxes. Figure 10.2 Page 358. Equilibrium With An Excise Tax.

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Theory Application In Competitive Markets

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  1. Theory Application In Competitive Markets Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  2. One the remarkable features of a perfectly competitive market: - in equilibrium. - a competitive market allocates resources efficiently. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  3. Excise Taxes • Figure 10.2 Page 358. Equilibrium With An Excise Tax. • The effects of an excise tax are: - The market will under produce. - Consumer surplus will be lower than with no tax. - Producer surplus will be lower than with no tax. - There will be a deadweight loss. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  4. Excise Taxes (continued) • Deadweight Loss: a reduction in net economic benefits resulting from an inefficient allocation of resource. • Figure 10.3. Page 360. Impact Of A $6 Excise Tax. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  5. Subsidies • Figure 10.6. Page 366. Impact Of A $3 Subsidy. • The effects of a subsidy: - The market will overproduce. - Consumer surplus will be higher. - Producer surplus will be higher. - There will be a deadweight loss. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  6. Price Ceilings (Maximum Price Regulation) • Sometimes a government may set a maximum allowable price in a market. • If the price ceiling is below the equilibrium price in a market, the ceiling will have effects: - The market will not clear. There will be an excess demand. - The market will under produce. - Producer surplus will be lower. - There will be a deadweight loss. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  7. Price Ceilings (Maximum Price Regulation) (continued) • Figure 10.7. Page 369 Impact Of Rent Controls. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  8. Price Floors (Minimum Price Regulation) • Government sometimes set minimum prices for goods or services. • When the government imposes a price floor higher than the free market price, the effects: - The market will not clear. There will be an excess supply of the good or service. - Consumers will buy less of the good than they would. - Consumer surplus will be lower. - There will be a deadweight loss. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  9. Price Floors (Minimum Price Regulation) • Figure 10.10. Page 377. Impact Of Minimum Wage Law. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  10. Production Quotas • If the government wants to support the price at a level above the equilibrium price in a free market, it may use a quota to restrict the quantity that producers can supply. • A quota is a limit on the number of producers in the market. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  11. Production Quotas (continued) • When the government imposes a quota in a market, we observe the effects: - The market will not clear. There will be an excess supply. - Consumers will buy less. - Consumer surplus will be lower. - There will be a deadweight loss. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

  12. Production Quotas (continued) • Figure 10.13. Page 384. Impact Of A 4 Million Unit Production Quota. Ir. Muhril Ardiansyah, M.Sc., Ph.D.

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