Lecture 13-14: Welfare and Social Choice

Lecture 13-14: Welfare and Social Choice Charit Tingsabadh M.Sc. Programme in Environmental and natural resource economics Semester 1/2006

Outline • From positive economics to normative economics • What is being compared • Measures of welfare • Examples • Empirics

Consumer surplus: the difference between what consumers are willing to pay and the price they pay for it. Calculated as the area under the demand curve and above the market price up to the quantity consumers buy. • Producer surplus: the difference between the amount for which a good sells and the minimum amount necessary for sellers to be willing to produce the good. • Deadweight loss: a net reduction in welfare from losses of surplus by one group that are not offset by gains to another group. • Subsidy: a payment for the pruchase of a good; the opposite of a tax. • Tariff: a tax levied on imported goods. • Quota: a statutory limit on the amount imported. • Rent seeking: effort and spending done to gain rent or profit from government action.

Chapter 9 Applying the Competitive Model Perloff, Microeconomics 3rd edition

Figure 9.1Consumer Surplus

Figure 9.1a Consumer Surplus

Figure 9.1b Consumer Surplus

Figure 9.2 Fall in Consumer Surplus From Roses as Price Rises

Table 9.1 Effect of a 10% Increase in Price on Consumer Surplus (Revenue and Consumer Surplus in Billions of 1999 Dollars)

Page 278 Solved Problem 9.1

Figure 9.3 Producer Surplus

Figure 9.3a Producer Surplus

Figure 9.3b Producer Surplus

Figure 9.4 Why Reducing Output from the Competitive Level Lowers Welfare

Figure 9.5 Why Increasing Output from the Competitive Level Lowers Welfare

Figure 9.6 Effect of a Restriction on the Number of Cabs

Figure 9.7 Welfare Effects of a Specific Tax on Roses

Figure 9.8 Welfare Effects of a Per-Unit Subsidy on Roses

Figure 9.9Effect of Pricing Supports in Soybeans

Figure 9.10Loss from Eliminating Free Trade

Figure 9.11Effect of a Tariff (or Quota)

Table 9.2 Welfare Cost of Trade Barriers (millions of 1999 Dollars)

Chapter 18 Externalities, Commons, and Public Goods

Figure 18.1 Welfare Effects of Pollution in a Competitive Market

Table 18.1Industrial CO2 Emissions, 1998

Figure 18.2Taxes to Control Pollution

Figure 18.3Cost-Benefit Analysis of Pollution

Application (Page 634) Emissions Standards for Ozone

Figure 18.4 Monopoly, Competition, and Social Optimum with Polution

Table 18.2Property Rights and Bargaining

Table 18.2aProperty Rights and Bargaining

Table 18.2bProperty Rights and Bargaining

Table 18.2cProperty Rights and Bargaining

Table 18.3 Rivalry and Exclusion

Figure 18.5 Inadequate Provision of a Public Good

Table 18.4Private Payments for a Public Good

Table 18.5Voting on $300 Traffic Signals

Cross-Chapter Analysis (Page 657)Emissions Fees Versus Standards Under Uncertainty

Lecture 13-14: Welfare and Social Choice