PPFs and Other Diagrams

1. PPFs and Other Diagrams

2. C A Output of consumer goods and services B Output of capital goods

3. C All Other Operations A B Heart Operations

4. Costs Revenues SAC1 SAC2 AR (Demand) Output (Q)

5. Basic Supply and Demand Analysis

6. Demand Curve Price P2 P1 P3 Demand Quantity Demanded Q2 Q1 Q3

7. Shift in demand Price P1 D2 D3 D1 Quantity Demanded Q2 Q1 Q3

8. Consumer Surplus and Price Elasticity of Demand Relatively Inelastic Demand Relatively Elastic Demand Price Price P1 Demand Demand Q1 Q2

9. Consumer Surplus and Price Elasticity of Demand Relatively Inelastic Demand Relatively Elastic Demand Price Price P1 Demand Demand Q1 Q2 Quantity Demanded Quantity Demanded

10. Perfectly Elastic Demand Perfectly Inelastic Demand Demand Price Price P2 P1 P1 Demand P3 Q2 Q1 Q3 Q1 Quantity Quantity

11. Perfectly Elastic Supply Perfectly Inelastic Supply Supply Price Price P2 P1 P1 Supply P3 Q2 Q1 Q3 Q1 Quantity Quantity

12. Relatively Elastic Supply Supply responds quickly to a change in demand Relatively Inelastic Supply Supply responds less than proportionately to a change in price Price Price Supply P2 Supply P1 P3 P2 P1 P3 D3 D2 D1 D3 D2 D1 Q2 Q1 Q3 Q1 Quantity Quantity

13. Price Supply P2 P1 D2 D1 Q2 Q1 Quantity

14. Price of DVD players Supply of DVD players P2 P1 D2 D1 Q1 Q2 Quantity demanded

15. Supply Price of Sterling in Euros P2 P1 Demand 2 Demand 1 Q2 Q1 Quantity of Pounds Sterling

16. S1 Price S2 P2 P1 P3 D1 D2 Q2 Q3 Q1 Quantity

17. Government Subsidy S1 Price Supply + Sub P3 P1 Subsidy per unit P2 Demand Q1 Q2 Quantity of Council Housing

18. Government Subsidy S1 Average Weekly Rent £ Supply + Subsidy Subsidy per unit P1 P2 Demand Q1 Q2 Quantity of Council Housing

19. Price G Supply pre subsidy Supply + Export Subsidy D A C E F B Demand Q1 Q2 Quantity

20. Price S1 S2 P1 P2 D1 Quantity Q2 Q1

21. S2 Price S1 F C A D E B D1 I J Quantity G H

22. Demand Price Supply post tax Supply pre tax P2 P1 Quantity Q1

23. Supply curves with different price elasticity A B Price Price Supply Supply Quantity Quantity Price Price Supply C D Supply Quantity Quantity

24. Demand curves with different price elasticity A B Price Price Demand Demand Quantity Quantity Price Price Supply C D Demand Demand Quantity Quantity

25. Supply Price P2 P1 D2 D1 Q2 Q1 Quantity

26. Price of Good S Demand Quantity demanded of Good T

27. S2 S1 Price P2 P1 D1 D2 Q2 Q1 Quantity

28. Price Price S pre subsidy S pre subsidy P1 P1 D2 D2 Q1 Q1 Quantity Quantity

29. Maximum Prices Supply Price Free Market Equilibrium Pe P max Price Ceiling Excess Demand Demand Q2 Q1 Quantity

30. Maximum Prices Supply Rent £s Free Market Equilibrium Pe P max Price (Rent) Ceiling Excess Demand Demand Q2 Q1 Quantity of Rented Property

31. Maximum Prices Supply Price Pe P max Maximum Price Demand A B C D Quantity

32. Supply Price Excess Supply P min Price Floor (Guaranteed) Pe Demand Q3 Q2 Q1 Quantity of output

33. Price Support Schemes – Buffer Stocks Supply Price Minimum Price P min Pe Demand A Quantity C B

34. Price Support Schemes – Buffer Stocks Supply S2 Price P min Price Floor (Guaranteed) Pe Demand Q3 Q1 Q4 Quantity

35. Price S1 S2 P1 P2 Demand Q2 Q3 Quantity

36. Increasing Market Supply – Consumer Benefits Price S1 S2 P1 P2 Demand Q2 Q3 Quantity

37. Producer Surplus Price Supply Equilibrium Point P1 Producer Surplus Demand Q1 Quantity

38. Producer Surplus Price Supply A P1 B C D Demand Q1 Quantity

39. Consumer Surplus Price Supply Equilibrium Point Consumer Surplus P1 Demand Q1 Quantity

40. Market Equilibrium Price Supply Equilibrium Point P1 Demand Q1 Quantity

41. Market Failure Diagrams

42. Social Efficiency / Welfare Losses Social Marginal Cost Costs Revenues Private Marginal Cost (Supply) P2 P1 Demand = Private Benefit = Social Benefit External Cost Q1 Output (Q) Q2

43. Negative Externalities Benefits Costs Marginal Social Cost Social Equilibrium a c Marginal Private Cost b P1 Demand (Private Marginal Benefit) Quantity of Output (Q) Q1 Q2

44. Voluntary Agreement Regulation Taxation Pollution Trading Schemes Tax Credits Tackling Externalities Pesticides EU C02 from cars agreement Aggregates Levy Landfill Tax Fuel Duty Climate Change Levy (CCL) Negative Externalities Emissions trading scheme Landfill permits Water quality legislation Reduced VAT on installation of central heating

45. Loss of Social Welfare from Externalities Benefits Costs Marginal Social Cost Social Equilibrium a c Marginal Private Cost b P1 Deadweight loss of economic welfare Demand (Private Marginal Benefit) = Social Marginal Benefit (SMB) Marginal External Cost Quantity of Output (Q) Q1 Q2

46. Merit Goods Costs Benefits A Supply External Benefit B Demand + External Benefits Private Demand Qp Qs Quantity of Housing

47. Merit Goods and Welfare Loss Costs Benefits Welfare loss where SMB>PMB above output Qp A PMC = SMC C External Benefit B SMB PMB Qp Qs Output (Q)

48. The Demand Curve for Public Goods Costs Benefits Value 2 Value 1 Value 1 Demand from A Demand from B Q1 Output (Q)

49. The Demand Curve for Public Goods Costs Benefits Demand A+B Value 2 Value 1 Value 1 Demand B Demand A Q1 Output (Q)

50. Socially Efficient Provision of Public Goods Costs Benefits Demand A+B Marginal Social Cost (MSC) Demand B Demand A Qp Output (Q)