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INTRODUCTION TO MICROECONOMICS
Graphs and Tables Part #1
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Figure II-1.1: The Increased Coordination of Decentralized Decision-makers’ Plans
Producers (make plans) Error Correction P decrease Produce too much Consume too little Error Correction P increase Produce too little Consume too much Consumers (make plans)
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Figure II-1.2: Basic Structure of a Market
COMPETITION PRODUCERS COOPERATION COOPERATION CONSUMERS COMPETITION
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Table II-2: Demand Schedule for Gasoline
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Figure II-2: Demand Curve for Gasoline
P $6 $5 $4 D Q 50 100
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Table II-3: Supply Schedule for Gasoline
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Figure II-3: Supply Curve of Gasoline
$3 $2 $1 Q 50 100
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Table II-4.1: The Market for Gasoline--Supply and Demand Schedules Combined
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Figure II-4.1: The Market for Gasoline--Supply and Demand Curves
$6.00 $3.50 D $1.00 Q 125
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Figure II-4.2: Excess Supply of Gasoline
$6.00 ES $4.50 $3.50 D $1.00 Q 75 125 175 ES = QS - QD =
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Figure II-4.2a: The Adjustment Process for Excess Supply
$6.00 ES $4.50 $4.00 $3.50 D $1.00 Q 75 125 175 At P = $4, ES =
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Table II-4.3: The Market for Gasoline—An Excess Demand
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Figure II-4.3: Excess Demand for Gasoline
P S $6.00 $3.50 $2.50 ED D $1.00 Q 175 75 125 ED = QD - QS =
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Figure II-4.3a: The Adjustment Process for Excess Demand
$6.00 $3.50 $3.00 $2.50 ED D $1.00 Q 175 75 125 When P = $3.00, ED =
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Table II-4a: An Increase in Demand, QD1
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Table II-4b: A Decrease in Demand, QD2
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Figure II-4.1: An Increase in Demand
P $7.00 $6.00 $3.50 D1 D0 Q 175 125 (1) An Increase in Demand (2) An Increase in the Quantity Demanded At Each Price
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Figure II-4.2: An Increase in the Quantity Demanded
P $6.00 $3.50 1 $2.50 D0 Q 125 175 2 A Movement Along a Given Demand Curve
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Table II-5: Summary of a Crucial Distinction
Cause Effect Language Shift in the Demand Curve Increase or Decrease in Demand Movement Along a Given Demand Curve Increase or Decrease in the Quantity Demanded
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Table II-5: An Increase in Demand, QD1
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Figure II-5: The Market for Gasoline Showing An Increase in Demand
P $7.00 S $6.00 $4.00 $3.50 D1 D0 $1.00 Q 125 150
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Table II-6a: An Increase in Supply, QS1
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Figure II-6.1: An Increase in Supply
$3.50 $1.00 $0.00 Q 125 175 (1) Increase in Supply (2) Increase in the Quantity Supplied At Each Price
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Table II-6b: A Decrease in Supply, QS2
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Table II-6b: A Decrease in Supply, QS2
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Figure II-6.2: An Increase in the Quantity Supplied
$4.50 1 $3.50 $1.00 Q 125 175 2 A Movement Along a Given Supply Curve
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Table II-7: Summary of a Crucial Distinction
Cause Effect Language Shift in the Supply Curve Increase or Decrease in Supply Movement Along a Given Supply Curve Increase or Decrease in the Quantity Supplied
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Table II-6a: An Increase in Supply, QS1
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Figure II-6.3: The Market for Gasoline Showing An Increase in Supply
$6.00 $3.50 $3.00 $1.00 D $0.00 Q 125 150
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Figure II-7: Selling Tickets and the Secondary Market for Tickets
P S $100 $50 D1 D0 Q 5, , ,000 D0 = Regular Event Demand Curve D1 = Very Popular Event Demand Curve
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Figure II-8.1: A Consumer’s Surplus
$120 CS $95 $70 D $20 Q CS for the 500th unit = $95 - $70 = $25 Consumer gains from trade for 500th unit.
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Table II-8: The Market for Apartments
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Figure II-8.1: A Consumer’s Surplus (CS)
$120 CS $95 $70 D $20 QAPARTMENTS CS for the 500th unit = $95 - $70 = $25 Consumer gains from trade for 500th unit.
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Figure II-8.2: Consumers’ Surplus (CS)
$120 $70 D $20 Q 1000 CS = 1/2 bh = 1/2(1,000)($120 - $70) = $25,000 = Total consumer gains from trade
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Figure II-8.3: A Producers’ Surplus
$120 $70 $45 PS D $20 Q 500 1,000 PS for the 500th unit = $70 - $45 = $25 Producer gains from trade for 500th unit
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Figure II-8.4: Producers’ Surplus (PS)
$120 $70 $45 PS D $20 Q 500 1,000 PS = ½ (b)(h) = ½ (1000)($70 - $20) = $25,000 = Total Producer Gains from Trade
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Figure II-9: The Social Welfare Maximum
P S $120 CS = $25,000 $70 D PS = $25,000 $20 Q 1,000 Note: (1) The Gains from Trade are Maximized at the Social Welfare Maximum. (2) CS + PS = $50,000
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Table II-10a: Imposing Taxes on Producers
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Table II-10a: Imposing Taxes on Producers
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How to Adjust the Supply Schedule for a Tax
1. Choose any quantity supplied (QS) from the supply schedule, say 1,200. 2. The minimum price associated with supplying the 1,200th unit is $80. 3. Since imposing a tax increases the costs of production for a producer, we should add the tax of $20 to the price of $80, yielding $100 as the minimum price at which a producer is willing and able to produce the 1,200th unit. 4. The rest of the numbers for the new supply schedule can be filled in noting that every $10 change in price yields a 200 unit change in the quantity supplied. 5. We now have a new supply schedule which represents a decrease in supply
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Figure II-10.1: The Effect of a Tax on the Supply Curve
STAX = $20 $100 S0 $80 $40 $20 Q 1,200 Note that the tax causes a decrease in supply
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Figure II-10.2: The Effect of a Tax on a Market
P STAX=$20 $120 CS’ S0 P1 = $80 WL P0 = $70 TaxRev P2 = $60 $40 PS’ D $20 Q Q1 = 800 1,000 = Q0
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Steps for Understanding How a Tax on Producers Affects the Market and Causes a Welfare Loss
1. Social Welfare Maximum, Original Equilibrium, P = $70, Q = 1,000 2. Impose a Tax = $20, Decrease Supply 3. New Equilibrium, P = $80, Q = 800 4. New CS’ = ½ (800)($120-$80) = $16,000 5. New PS’ = ½ (800)($60-$20) = $16,000 6. Tax Rev = (800)($20) = $16,000 7. Compare Before and After Tax CS and PS CS + PS = $50,000 CS’ + PS’ + Tax Rev = $48,000 8. WL = ½ ($20)(200) = $2,000
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Figure II-10.3: Effect of a Producer Tax
Tax on producers results in misallocation of resources: Too little output in Taxed Market and too much output in the Rest of Economy Producer Tax Rest of Economy Market Resources (Lower Valued Uses) Output Decreases Output Increases Producer Tax on Market is equivalent to a subsidy for the Rest of Economy
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*Table II-10b: Imposing Taxes on Producers
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*Figure II-10.4: The Effect of a Tax on the Supply Curve
$10 $2 Q
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*Figure II-10.5: The Effect of a Tax on the Supply Curve
$22 $12 D $2 Q 5,000
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How to Adjust the Supply Schedule for a Subsidy
1. Choose any quantity supplied (QS) from the supply schedule. Say 1,200. 2. The minimum price associated with supplying the 1,200th unit is $80. 3. Since granting a subsidy decreases the costs of production for a producer, we should subtract the subsidy of $20 from the price of $80, yielding $60 as the minimum price that a producer is willing and able to produce the 1,200th unit. 4. The rest of the numbers for the new supply schedule can be filled in noting that every $10 change in price yields a 200 unit change in the quantity supplied. 5. We now have a new supply schedule which represents an increase in supply
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Table II-11a: Creating a Subsidy for Producers
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Figure II-11.1: The Effect of a Subsidy on the Supply Curve
$80 SSUB=$20 $60 $20 Q $00 1,200 Note that the subsidy causes an increase in supply.
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Steps for Understanding How a Subsidy to Producers Affects the Market and Causes a Welfare Loss
1. Social Welfare Maximum, Original Equilibrium, P = $70, Q = 1,000 2. Grant a Subsidy = $20, Increase Supply 3. New Equilibrium, P = $60, Q = 1,200 4. Total Subsidy = (1,200)($20) = $24,000 5. WL = $2,000 = ½ ($20)(200)
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Figure II-11.2: The Welfare Loss from a Subsidy to Producers
$120 SSUB=$20 P2 = $80 P0 = $70 WL P1 = $60 $20 D $00 Q Q0 = 1,000 1,200 = Q1
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Figure II-11.3: Effect of a Producer Subsidy
Subsidy to producers results in misallocation of resources: Too much output in subsidized Market and too little output in the Rest of Economy Producer Subsidy Rest of Economy Market Resources (Lower Valued Use) Output Increases Output Decrease s Producer Subsidy in Market is equivalent to a tax on the Rest of Economy
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Table II-12: The Market for Rental Housing
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Figure II-12.1: The Effect of a Price Ceiling on a Market
S $1,200 $1,000 $700 PC = $400 ED D $200 Q 400 1,000 1,600
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Figure II-12.2: Effect of Rent Controls on Nearby Uncontrolled Housing Markets
P S $900 $700 D1 D0 Q 1, ,000
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Figure II-12.3: Price Distribution in City without Rent Control
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Figure II-12.4: Price Distribution in City with Rent Control
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Figure II-13: The Effect of a Price Ceiling on a Market : Welfare Loss
$1,200 WL $1,000 $700 PC = $400 ED D $200 Q 400 1,000 1,600
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Table II-14: The Market for Corn
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Figure II-14: The Effect of a Price Floor on a Market
S $12 ES PF = $10 $7 D $2 Q , ,600
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Figure II-15: The Rationing Function of Markets
P $120 S $70 $20 D Q 1,000
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