F I R M S A N D M A R K E T S I I I MPA 612: Economy, Society, - PowerPoint PPT Presentation

F I R M S A N D M A R K E T S I I I MPA 612: Economy, Society, and Public Policy March 4, 2019 Fill out your reading report on Learning Suite

P L A N F O R T O D A Y Supply and demand Changes in supply and demand Surplus Taxes, incidence, and DWL

S U P P LY A N D D E M A N D

D E M A N D = W T P = M A R G I N A L B E N E F I T

S U P P L Y = W T A = M A R G I N A L C O S T

<latexit sha1_base64="oiq46QjQwYGWREdNWodP5spFPuE=">ACKXicbVDJSgNBFOxN25Rj14agyKIQycoLiC4HTxGNCpkQujpvGhjT8/Q/UYMQ7Hi7/ixYPb1R+xsyBuBQ1FVT1evwoTJS0y9uYNDA4Nj4yOjecmJqemZ/Kzc+c2To2AiohVbC5DbkFJDRWUqOAyMcCjUMFeHPY8S9uwVgZ6zNsJVCL+JWTSk4Oqme3w8Q7jA7gojrxg5tL9My3aVrzN84oau0xGgQ5HqR0zRJVOsrwvxSL1LPF5jPuqB/SbFPCqSPcj3/FDRikUagUShubXIEqxl3KAUCtq5ILWQcHDr6DqOYR2FrWPbVNl5zSoM3YuKeRdtXvExmPrG1FoUtGHK/tb68j/udVU2xu1TKpkxRBi96iZqoxrTG21IAwJVyxEujHR/peKaGy7QtZtzJR/n/yXVEr+ts9O1gt7B/02xsgCWSQrpEg2yR45JmVSIYLck0fyTF68B+/Je/Xe9EBrz8zT37A+/gElahXQ=</latexit> <latexit sha1_base64="oiq46QjQwYGWREdNWodP5spFPuE=">ACKXicbVDJSgNBFOxN25Rj14agyKIQycoLiC4HTxGNCpkQujpvGhjT8/Q/UYMQ7Hi7/ixYPb1R+xsyBuBQ1FVT1evwoTJS0y9uYNDA4Nj4yOjecmJqemZ/Kzc+c2To2AiohVbC5DbkFJDRWUqOAyMcCjUMFeHPY8S9uwVgZ6zNsJVCL+JWTSk4Oqme3w8Q7jA7gojrxg5tL9My3aVrzN84oau0xGgQ5HqR0zRJVOsrwvxSL1LPF5jPuqB/SbFPCqSPcj3/FDRikUagUShubXIEqxl3KAUCtq5ILWQcHDr6DqOYR2FrWPbVNl5zSoM3YuKeRdtXvExmPrG1FoUtGHK/tb68j/udVU2xu1TKpkxRBi96iZqoxrTG21IAwJVyxEujHR/peKaGy7QtZtzJR/n/yXVEr+ts9O1gt7B/02xsgCWSQrpEg2yR45JmVSIYLck0fyTF68B+/Je/Xe9EBrz8zT37A+/gElahXQ=</latexit> <latexit sha1_base64="oiq46QjQwYGWREdNWodP5spFPuE=">ACKXicbVDJSgNBFOxN25Rj14agyKIQycoLiC4HTxGNCpkQujpvGhjT8/Q/UYMQ7Hi7/ixYPb1R+xsyBuBQ1FVT1evwoTJS0y9uYNDA4Nj4yOjecmJqemZ/Kzc+c2To2AiohVbC5DbkFJDRWUqOAyMcCjUMFeHPY8S9uwVgZ6zNsJVCL+JWTSk4Oqme3w8Q7jA7gojrxg5tL9My3aVrzN84oau0xGgQ5HqR0zRJVOsrwvxSL1LPF5jPuqB/SbFPCqSPcj3/FDRikUagUShubXIEqxl3KAUCtq5ILWQcHDr6DqOYR2FrWPbVNl5zSoM3YuKeRdtXvExmPrG1FoUtGHK/tb68j/udVU2xu1TKpkxRBi96iZqoxrTG21IAwJVyxEujHR/peKaGy7QtZtzJR/n/yXVEr+ts9O1gt7B/02xsgCWSQrpEg2yR45JmVSIYLck0fyTF68B+/Je/Xe9EBrz8zT37A+/gElahXQ=</latexit> ������� P = − 0 . 5 Q + 20 ������� P = 0 . 25 Q + 2

C H A N G E S I N S U P P LY A N D D E M A N D

C H A N G E I N D E M A N D

C H A N G E I N D E M A N D Demand higher at every possible point Structural change Price increases; quantity increases (or decreases/decreases) Supply remains the same People start preferring hamburgers over pizza

C H A N G E I N Q U A N T I T Y D E M A N D E D Prices and quantity change… …but not because of structural issues Movement along demand curve Supply remains the same Price of pizza changes

Two ways to get from 24 to 31ish A → C Change in quantity demanded Only price changes A → B Change in demand New demand curve

C A U S E S O F S H I F T I N G D E M A N D Change in price of complementary goods Change in price of substitute goods Change in population of buyers Change in income Change in preferences

Orange market Dr. Oz promotes new fad diet where everyone eats 10 oranges a day Car market Consumer income rises Car market Gas prices double Shoe market More manufacturers make shoes Lettuce market Price drops by 10 cents

C H A N G E I N S U P P LY

C H A N G E I N S U P P LY Supply higher at every possible point Structural change Price increases; quantity increases (or decreases/decreases) Demand remains the same Cost of production changes because of technology or input costs

C H A N G E I N Q U A N T I T Y S U P P L I E D Prices and quantity change… …but not because of structural issues Movement along supply curve Demand remains the same Price of product changes

Two ways to get from 24 to 17ish A → C Change in quantity supplied Only price changes A → B Change in supply New supply curve

C A U S E S O F S H I F T I N G S U P P LY Change in cost of inputs Change in cost of production Change in weather Change in number of suppliers Expectation of lower prices

New engine design reduces Car market production costs Orange market Freeze in Florida kills 50% of the crop Price of shoes increases Shoe market Shoe market Price of leather increases

S U R P L U S

Consumer surplus Difference between WTP and price How good of a deal consumer gets Producer surplus Difference between price and WTA How good of a deal producer gets

<latexit sha1_base64="/3FZGOerARFa3gvJgZJdYZID/9g=">ACDnicbZDLSsNAFIYn9VbjLerSzWCxCGJIisULCEVduGzR2EITymQ6bYdOLsxMhBL6Bm58FTcuVNy6dufbOG0jaOsPAz/fOYcz5/djRoW0rC8tNze/sLiUX9ZXVtfWN4zNrTsRJRwTB0cs4g0fCcJoSBxJSONmBMU+IzU/f7lqF6/J1zQKLyVg5h4AeqGtEMxkgq1jOLNGazC4jkswQNomaVyDbqufvUDLXioaLnWMgqWaY0FZ42dmQLIVG0Zn247wklAQokZEqJpW7H0UsQlxYwMdTcRJEa4j7qkqWyIAiK8dHzPEO4p0oadiKsXSjimvydSFAgxCHzVGSDZE9O1Efyv1kxk58RLaRgnkoR4sqiTMCgjOAoHtiknWLKBMghzqv4KcQ9xhKWKUFch2NMnzxqnZJ6adu2oULnI0siDHbAL9oENjkEFXIMqcAGD+AJvIBX7VF71t6090lrTstmtsEfaR/fTAOVdA=</latexit> <latexit sha1_base64="/3FZGOerARFa3gvJgZJdYZID/9g=">ACDnicbZDLSsNAFIYn9VbjLerSzWCxCGJIisULCEVduGzR2EITymQ6bYdOLsxMhBL6Bm58FTcuVNy6dufbOG0jaOsPAz/fOYcz5/djRoW0rC8tNze/sLiUX9ZXVtfWN4zNrTsRJRwTB0cs4g0fCcJoSBxJSONmBMU+IzU/f7lqF6/J1zQKLyVg5h4AeqGtEMxkgq1jOLNGazC4jkswQNomaVyDbqufvUDLXioaLnWMgqWaY0FZ42dmQLIVG0Zn247wklAQokZEqJpW7H0UsQlxYwMdTcRJEa4j7qkqWyIAiK8dHzPEO4p0oadiKsXSjimvydSFAgxCHzVGSDZE9O1Efyv1kxk58RLaRgnkoR4sqiTMCgjOAoHtiknWLKBMghzqv4KcQ9xhKWKUFch2NMnzxqnZJ6adu2oULnI0siDHbAL9oENjkEFXIMqcAGD+AJvIBX7VF71t6090lrTstmtsEfaR/fTAOVdA=</latexit> <latexit sha1_base64="/3FZGOerARFa3gvJgZJdYZID/9g=">ACDnicbZDLSsNAFIYn9VbjLerSzWCxCGJIisULCEVduGzR2EITymQ6bYdOLsxMhBL6Bm58FTcuVNy6dufbOG0jaOsPAz/fOYcz5/djRoW0rC8tNze/sLiUX9ZXVtfWN4zNrTsRJRwTB0cs4g0fCcJoSBxJSONmBMU+IzU/f7lqF6/J1zQKLyVg5h4AeqGtEMxkgq1jOLNGazC4jkswQNomaVyDbqufvUDLXioaLnWMgqWaY0FZ42dmQLIVG0Zn247wklAQokZEqJpW7H0UsQlxYwMdTcRJEa4j7qkqWyIAiK8dHzPEO4p0oadiKsXSjimvydSFAgxCHzVGSDZE9O1Efyv1kxk58RLaRgnkoR4sqiTMCgjOAoHtiknWLKBMghzqv4KcQ9xhKWKUFch2NMnzxqnZJ6adu2oULnI0siDHbAL9oENjkEFXIMqcAGD+AJvIBX7VF71t6090lrTstmtsEfaR/fTAOVdA=</latexit> <latexit sha1_base64="/3FZGOerARFa3gvJgZJdYZID/9g=">ACDnicbZDLSsNAFIYn9VbjLerSzWCxCGJIisULCEVduGzR2EITymQ6bYdOLsxMhBL6Bm58FTcuVNy6dufbOG0jaOsPAz/fOYcz5/djRoW0rC8tNze/sLiUX9ZXVtfWN4zNrTsRJRwTB0cs4g0fCcJoSBxJSONmBMU+IzU/f7lqF6/J1zQKLyVg5h4AeqGtEMxkgq1jOLNGazC4jkswQNomaVyDbqufvUDLXioaLnWMgqWaY0FZ42dmQLIVG0Zn247wklAQokZEqJpW7H0UsQlxYwMdTcRJEa4j7qkqWyIAiK8dHzPEO4p0oadiKsXSjimvydSFAgxCHzVGSDZE9O1Efyv1kxk58RLaRgnkoR4sqiTMCgjOAoHtiknWLKBMghzqv4KcQ9xhKWKUFch2NMnzxqnZJ6adu2oULnI0siDHbAL9oENjkEFXIMqcAGD+AJvIBX7VF71t6090lrTstmtsEfaR/fTAOVdA=</latexit> S : P = 2 + 0 . 25 Q D : P = 20 − 0 . 5 Q

TA X E S , I N C I D E N C E , A N D D W L

W H Y D O G O V E R N M E N T S T A X ? Raise revenue for services Redistribute resources Encourage or discourage consumption

W H A T H A P P E N S W H E N G O V E R N M E N T S T A X ? Revenue raised for public goods Resources redistributed Markets distorted; loss of efficiency

<latexit sha1_base64="/3FZGOerARFa3gvJgZJdYZID/9g=">ACDnicbZDLSsNAFIYn9VbjLerSzWCxCGJIisULCEVduGzR2EITymQ6bYdOLsxMhBL6Bm58FTcuVNy6dufbOG0jaOsPAz/fOYcz5/djRoW0rC8tNze/sLiUX9ZXVtfWN4zNrTsRJRwTB0cs4g0fCcJoSBxJSONmBMU+IzU/f7lqF6/J1zQKLyVg5h4AeqGtEMxkgq1jOLNGazC4jkswQNomaVyDbqufvUDLXioaLnWMgqWaY0FZ42dmQLIVG0Zn247wklAQokZEqJpW7H0UsQlxYwMdTcRJEa4j7qkqWyIAiK8dHzPEO4p0oadiKsXSjimvydSFAgxCHzVGSDZE9O1Efyv1kxk58RLaRgnkoR4sqiTMCgjOAoHtiknWLKBMghzqv4KcQ9xhKWKUFch2NMnzxqnZJ6adu2oULnI0siDHbAL9oENjkEFXIMqcAGD+AJvIBX7VF71t6090lrTstmtsEfaR/fTAOVdA=</latexit> <latexit sha1_base64="/3FZGOerARFa3gvJgZJdYZID/9g=">ACDnicbZDLSsNAFIYn9VbjLerSzWCxCGJIisULCEVduGzR2EITymQ6bYdOLsxMhBL6Bm58FTcuVNy6dufbOG0jaOsPAz/fOYcz5/djRoW0rC8tNze/sLiUX9ZXVtfWN4zNrTsRJRwTB0cs4g0fCcJoSBxJSONmBMU+IzU/f7lqF6/J1zQKLyVg5h4AeqGtEMxkgq1jOLNGazC4jkswQNomaVyDbqufvUDLXioaLnWMgqWaY0FZ42dmQLIVG0Zn247wklAQokZEqJpW7H0UsQlxYwMdTcRJEa4j7qkqWyIAiK8dHzPEO4p0oadiKsXSjimvydSFAgxCHzVGSDZE9O1Efyv1kxk58RLaRgnkoR4sqiTMCgjOAoHtiknWLKBMghzqv4KcQ9xhKWKUFch2NMnzxqnZJ6adu2oULnI0siDHbAL9oENjkEFXIMqcAGD+AJvIBX7VF71t6090lrTstmtsEfaR/fTAOVdA=</latexit> <latexit sha1_base64="/3FZGOerARFa3gvJgZJdYZID/9g=">ACDnicbZDLSsNAFIYn9VbjLerSzWCxCGJIisULCEVduGzR2EITymQ6bYdOLsxMhBL6Bm58FTcuVNy6dufbOG0jaOsPAz/fOYcz5/djRoW0rC8tNze/sLiUX9ZXVtfWN4zNrTsRJRwTB0cs4g0fCcJoSBxJSONmBMU+IzU/f7lqF6/J1zQKLyVg5h4AeqGtEMxkgq1jOLNGazC4jkswQNomaVyDbqufvUDLXioaLnWMgqWaY0FZ42dmQLIVG0Zn247wklAQokZEqJpW7H0UsQlxYwMdTcRJEa4j7qkqWyIAiK8dHzPEO4p0oadiKsXSjimvydSFAgxCHzVGSDZE9O1Efyv1kxk58RLaRgnkoR4sqiTMCgjOAoHtiknWLKBMghzqv4KcQ9xhKWKUFch2NMnzxqnZJ6adu2oULnI0siDHbAL9oENjkEFXIMqcAGD+AJvIBX7VF71t6090lrTstmtsEfaR/fTAOVdA=</latexit> <latexit sha1_base64="/3FZGOerARFa3gvJgZJdYZID/9g=">ACDnicbZDLSsNAFIYn9VbjLerSzWCxCGJIisULCEVduGzR2EITymQ6bYdOLsxMhBL6Bm58FTcuVNy6dufbOG0jaOsPAz/fOYcz5/djRoW0rC8tNze/sLiUX9ZXVtfWN4zNrTsRJRwTB0cs4g0fCcJoSBxJSONmBMU+IzU/f7lqF6/J1zQKLyVg5h4AeqGtEMxkgq1jOLNGazC4jkswQNomaVyDbqufvUDLXioaLnWMgqWaY0FZ42dmQLIVG0Zn247wklAQokZEqJpW7H0UsQlxYwMdTcRJEa4j7qkqWyIAiK8dHzPEO4p0oadiKsXSjimvydSFAgxCHzVGSDZE9O1Efyv1kxk58RLaRgnkoR4sqiTMCgjOAoHtiknWLKBMghzqv4KcQ9xhKWKUFch2NMnzxqnZJ6adu2oULnI0siDHbAL9oENjkEFXIMqcAGD+AJvIBX7VF71t6090lrTstmtsEfaR/fTAOVdA=</latexit> S : P = 2 + 0 . 25 Q D : P = 20 − 0 . 5 Q