1. EPI, Consumers’, Producers’ & Net Social Surplus Lecture 8
Dr. Jennifer P. Wissink
©2018 John M. Abowd and Jennifer P. Wissink, all rights reserved.
February 21, 2018

2. Announcements-micro Spring 2018
MEL Quiz due TONIGHT.
Make sure to hit Submit Quiz before 11pm!
Seems to be that if you already submitted your 1st attempt, then if you fail to submit your 2nd attempt, the system will not allow me to submit it for you.
CES Event!

3. EPI of a Per Unit Commodity Tax
Tax=10₵/gal
Collected from suppliers.
Price
Supply A
Demand
Quantity

4. EPI of a Per Unit Commodity Tax
Would it have made a difference if we collected the tax from demanders instead of suppliers?
A. Yes
B. No P S
Do demanders and suppliers always share the EPI of a commodity tax 40/60?
A. Yes
B. No D Q

5. Using the Tax ToothpickPD
Price
tax
Supply PS
Demand
Quantity

6. i>clicker question
Suppose the demand curve in market X is vertical. Suppose the supply curve in market X is typical. Suppose a tax of $t/unit is levied on X and it is legally collected from suppliers. In this case which one of the following is true?
Suppliers bear all the EPI of the tax.
Demanders bear all the EPI of the tax.
No one bears the EPI of the tax.
Demanders and suppliers equally split the EPI of the tax.
Demanders and suppliers share in some way the EPI of the tax. P D S Q

7. i>clicker question
Suppose the supply curve in market X is vertical. Suppose the demand curve in market X is typical. Suppose a tax of $t/unit is levied on X and it is legally collected from suppliers. In this case which one of the following is true?
Suppliers bear all the EPI of the tax.
Demanders bear all the EPI of the tax.
No one bears the EPI of the tax.
Demanders and suppliers equally split the EPI of the tax.
Demanders and suppliers share in some way the EPI of the tax. P S D Q

8. Who Bears the EPI of the Commodity Tax? Try These Cases On Your Own!Q Q

9. Commodity Taxes In The News
Sugar Tax Ireland: Government confirm tax on fizzy drinks will take effect on April 6 - here's which brands could be affected
The Tax Foundation: State Sales, Gasoline, Cigarette, and Alcohol Taxes
Top 12 weirdest tax rules around the world
Karis Hustad, Friday, 14 Feb 2014 | 2:45 PM ETChristian Science Monitor
5. Sweden: Baby names need tax agency approval
Choosing a name for your new son or daughter is a difficult decision, one that requires at least the mother and father to be in agreement. In Sweden there is one more necessary party: the Swedish tax agency.
Swedish people are required to have their child's name approved by the Swedish tax agency before the child turns five. If parents fail to do so, they can be fined up to 5,000 kroner (or $770). The law originally was put in place in 1982, reportedly to prevent citizens from using royal names, but the law states the rationale is that by approving the name the tax agency can protect a child from an offensive or confusing name.
What kind of names are unacceptable? The tax agency has rejected "Ikea" (due to potential confusion) and "Allah" (due to potential religious offense), as well as "Brfxxccxxmnpcccclllmmnprxvclmnckssqlbb11116", which one child's parents attempted to name their child in protest of the law. However, "Google" and "Lego" were recently allowed.

10. Who Shares the EPI of a Per-Unit Subsidy
Who Shares the EPI of a Per-Unit Subsidy? Try This Situation On Your Own! $P
Supply
Demand
Quantity

11. Take a Break to Reflect

12. Surplus Measures: Consumers’ & Producers’ & Net Social
Goal: to measure the gains from trade in $...
and more
Three concepts to introduce:
Consumers’ Surplus (CS)
Producers’ Surplus (PS)
Net Social Surplus (NSS)

13. This Old House Old address: 133 Tompkins St.
New address: 132 Tompkins St.
Problem: We bought the new house before selling the old one.
So... suppose...
Our minimum selling price = $55,000.
Potential buyer Abe: His maximum buying price = $45,000.
So, no deal with Abe.

14. Selling our OLD House Suppose, a potential (and last) buyer Betty.
Her maximum price = $95,000.
Remember: Our minimum selling price = $55,000.
Trade should occur!
Net social surplus on trade = $40,000
Division of surplus to the Wissink’s and to Betty depends on the strike price - what we sell the house for.
Suppose we sold it for $90,000.
HA!
Consumer’s surplus=$5,000
Producer’s surplus=$35,000.
What did we sell it for?
Don’t ask!

15. Surplus Measures: Consumers’ & Producers’ & Net Social
Consumers’ Surplus (CS) on Q units
CS = Total Benefit – Total Consumers’ Expenditure
CS = TB - TE
Producers’ Surplus (PS) on Q units
PS = Total Producers’ Revenue – Total Variable Cost
PS = TR - VC
Net Social Surplus (NSS) on Q units
NSS = Total Benefit – Total Variable Cost
NSS = TB - VC

16. Demand Price, Marginal Benefit & Total Benefit
Suppose QD = 40 – P
That means PD = 40 – Q
Suppose private values = social values
Price 40
Demand 40
Quantity

17. Consumers’ Surplus (CS) = TB – TE, when QD=40-P or PD=40-P and P*=17 Q*=23
CS on 1st unit:
Price
CS on 2nd unit: 40
CS on 23rd unit:
CS on 23 units:
P*=17
Demand = MB
Q*=23 40
Quantity

18. i>clicker question
Suppose Frannie’s demand price (i.e. what she is willing to pay) is as follows: $3 for the first can of juice, $2 for the second, $1 for the third and $0.50 for the fourth. Suppose a can of juice sells for $ How much consumer’s surplus will Frannie get from her juice consumption?
A. $6.50
B. $6.00
C. $4.00
D. $3.75
E. $0

19. Supply Price, Marginal Cost and Total Variable Cost
Suppose QS = 6 + P
That means PS = -6 + Q
Suppose private values = social values
Price
Supply 6
Quantity

20. Producers’ Surplus (PS) = TR – VC, when QS=6+P or PS=-6+Q and P. =17 Q
PS on 1st unit:
Price
PS on 7th unit:
Supply = MC
PS on 23rd unit:
PS on 23 units:
P*=17 6
Q*=23
Quantity