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9
The Analysis
of Competitive
Markets
Prepared by:
Fernando & Yvonn
Quijano
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.
CHAPTER 9 OUTLINE
9.1 Evaluating the Gains and Losses from
Government PoliciesConsumer and
Producer Surplus
9.2 The Efficiency of a Competitive Market
9.3 Minimum Prices
9.4 Price Supports and Production Quotas
9.5 Import Quotas and Tariffs
9.6 The Impact of a Tax or Subsidy
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9.1
Figure 9.1
Consumer and Producer
Surplus
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9.1
Figure 9.1
Consumer and Producer
Surplus (continued)
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9.1
welfare effects
Figure 9.2
Change in Consumer and Producer
Surplus from Price Controls
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9.1
Figure 9.3
Effect of Price Controls When
Demand Is Inelastic
If demand is sufficiently
inelastic, triangle B can be
larger than rectangle A. In this
case, consumers suffer a net
loss from price controls.
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9.1
Figure 9.4
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9.2
Market Failure
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9.2
Figure 9.5
Welfare Loss When Price is Held
Above Market-Clearing Level
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9.2
Figure 9.6
Demand: QD = 32,0000.4P
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9.2
Figure 9.6
Demand: QD = 32,0000.4P
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9.3
MINIMUM PRICES
Figure 9.7
Price Minimum
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9.3
MINIMUM PRICES
Figure 9.8
The Minimum Wage
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9.3
MINIMUM PRICES
Figure 9.9
Effect of Airline Regulation by
the Civil Aeronautics Board
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9.3
MINIMUM PRICES
1980
1985
1990
1995
Number of Carriers
36
63
102
70
54
58
61
.218
.210
101
2000
2005
96
94
90
62
67
72
78
.165
.150
.129
.118
.092
122
111
109
100
101
93
249
300
204
163
100
125
237
71
73
88
95
100
96
67
By 1981, the airline industry had been completely deregulated. Since that time, many
new airlines have begun service, others have gone out of business, and price
competition has become much more intense. Because airlines have no control over
oil prices, it is more informative to examine a corrected real cost index which
removes the effects of changing fuel costs.
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9.4
Price Supports
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9.4
Production Quotas
Figure 9.11
Supply Restrictions
CS = A B
PS = A C + Payments for not producing (or at least B + C + D)
Welfare = A B + A + B + D B C D = B C
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9.4
Figure 9.12
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9.4
Figure 9.13
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9.5
import quota
imported.
tariff
Figure 9.14
Import Tariff or Quota That
Eliminates Imports
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9.5
Figure 9.15
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9.5
Figure 9.16
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9.5
Figure 9.16
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9.6
specific tax
Figure 9.17
Incidence of a Tax
Market clearing requires four conditions to be satisfied after the tax is in place:
QD = QD(Pb)
(9.1a)
QS = QS(Ps)
(9.1b)
QD = QS
Pb Ps = t
(9.1c)
(9.1d)
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9.6
Figure 9.18
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9.6
Figure 9.19
QD = QD(Pb)
(9.2a)
QS = QS(Ps)
(9.2b)
QD = QS
Ps Pb = s
(9.2c)
(9.2d)
Subsidy
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9.6
(Demand)
QS = 60 + 20Ps
(Supply)
QD = Q S
Pb Ps = 1.00
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9.6
Figure 9.20
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