1. INTRODUCTION TO MICROECONOMICS Graphs and Tables Part #1

2. Figure II-1.1: The Increased Coordination of Decentralized Decision-makers’ Plans Producers (make plans) Consumers (make plans) Produce too much Consume too little Error Correction P decrease Produce too little Consume too much Error Correction P increase

3. Figure II-1.2: Basic Structure of a Market PRODUCERS COMPETITION CONSUMERS COMPETITION COOPERATION

4. Table II-2: Demand Schedule for Gasoline

5. Figure II-2: Demand Curve for Gasoline D Q $6 $5 $4 50 100 P

6. Table II-3: Supply Schedule for Gasoline

7. Figure II-3: Supply Curve of Gasoline P Q S $1 $2 50 $3 100

8. Table II-4: The Market for Gasoline--Supply and Demand Schedules Combined

9. Figure II-4.1: The Market for Gasoline-- Supply and Demand Curves P Q S D $3.50 $6.00 $1.00 125

10. Figure II-4.2: Excess Supply of Gasoline P Q S D ES $3.50 $4.50 125 75 175 ES = Q S - Q D = $6.00 $1.00

11. Figure II-4.2a: Excess Supply of Gasoline P Q S D ES $3.50 $4.50 125 75 175 $6.00 $1.00 $4.00 At P = $4, ES =

12. Figure II-4.3: Excess Demand for Gasoline P Q S D ED $3.50 $2.50 12575 175 $6.00 $1.00 ED = Q D - Q S =

13. Figure II-4.3a: Excess Demand for Gasoline P Q S D ED $3.50 $2.50 12575 175 $6.00 $1.00 $3.00 When P = $3.00, ED =

14. Table II-5a: An Increase in Demand, Q D 1

15. Figure II-5.1: An Increase in Demand Q P D0D0 D1D1 $3.50 $6.00 $7.00 125 175 (1) An Increase in Demand (2) An Increase in the Quantity Demanded At Each Price

16. Table II-5b: A Decrease in Demand, Q D 2

17. Figure II-5.2: An Increase in the Quantity Demanded D0D0 Q P $6.00 $3.50 $2.50 125 175 A Movement Along a Given Demand Curve 1 2

18. Table II-5c: 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

19. Table II-5a: An Increase in Demand, Q D 1

20. Figure II-5.3: The Market for Gasoline Showing An Increase in Demand P Q D0D0 D1D1 S $3.50 $4.00 $6.00 $1.00 $7.00 125 150

21. Table II-6a: An Increase in Supply, Q S 1

22. Figure II-6.1: An Increase in Supply P Q S0S0 S1S1 $3.50 125175 (1) Increase in Supply (2) Increase in the Quantity Supplied At Each Price $1.00 $0.00

23. Table II-6b: A Decrease in Supply, Q S 2

24. Figure II-6.2: An Increase in the Quantity Supplied P Q S0S0 $1.00 $3.50 $4.50 125 175 A Movement Along a Given Supply Curve 1 2

25. Table II-6c: 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

26. Table II-6a: An Increase in Supply, Q S 1

27. Figure II-6.3: The Market for Gasoline Showing An Increase in Supply Q P S0S0 S1S1 D $6.00 $3.50 $3.00 $1.00 $0.00 125150

28. Figure II-7: Selling Tickets and Scalping S D0D0 D1D1 $50 5,000 10,000 20,000 $100 Q P D 0 = Regular Event Demand Curve D 1 = Very Popular Event Demand Curve

29. Table II-8: The Market for Bicycles

30. Figure II-8.1: A Consumer’s Surplus $20 $120 $70 500 1000 D S Q P CS CS for the 500 th unit = $95 - $70 = $25 Consumer gains from trade for 500 th unit. $95

31. Figure II-8.2: Consumers’ Surplus (CS) $20 $120 $70 1000 D S Q P CS CS = 1/2 bh = 1/2(1,000)($120 - $70) = $25,000 = Total consumer gains from trade

32. Figure II-8.3: A Producer’s Surplus $20 $120 $70 $45 1,000500 D S Q P PS for the 500th unit = $70 - $45 = $25 Producer gains from trade for 500 th unit PS

33. Figure II-8.4: Producers’ Surplus (PS) $20 $120 $70 $45 1,000500 D S Q P PS = ½ (b)(h) = ½ (1000)($70 - $20) = $25,000 = Total Producer Gains from Trade PS

34. Figure II-9: The Social Welfare Maximum CS = $25,000 PS = $25,000 D S Q P 1,000 $70 $20 $120 Note: (1) The Gains from Trade are Maximized at the Social Welfare Maximum. (2) CS + PS = $50,000

35. Table II-10a: Imposing Taxes on Producers

36. How to Adjust the Supply Schedule for a Tax 1. Choose any quantity supplied (Q S ) from the supply schedule, say 1,200. 2. The minimum price associated with supplying the 1,200 th 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 1,200 th 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

37. Figure II-10.1: The Effect of a Tax on the Supply Curve $20 $40 S0S0 S TAX = $20 Q P $80 $100 Note that the tax causes a decrease in supply 1,200

38. Figure II-10.2: The Effect of a Tax on a Market D S0S0 S TAX=$20 $20 $40 P 0 = $70 P 1 = $80 P 2 = $60 $120 P Q 1,000 = Q 0 Q 1 = 800 CS’ PS’ WL TaxRev

39. 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

40. 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 Rest of Economy Market Producer Tax Resources Output Decreases Output Increases (Lower Valued Uses) Producer Tax on Market is equivalent to a subsidy for the Rest of Economy

41. Table II-10b: Imposing Taxes on Producers

42. Figure II-10.4: The Effect of a Tax on the Supply Curve $2 S0S0 Q P $10

43. Figure II-10.5: The Effect of a Tax on the Supply Curve $2 S0S0 Q P $12 5,000 $22 D

44. Table II-11: Granting a Subsidy to Producers

45. How to Adjust the Supply Schedule for a Subsidy 1. Choose any quantity supplied (Q S ) from the supply schedule. Say 1,200. 2. The minimum price associated with supplying the 1,200 th 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 1,200 th 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

46. Figure II-11.1: The Effect of a Subsidy on the Supply Curve S0S0 S SUB=$20 $20 $00 $60 $80 1,200 Q P Note that the subsidy causes an increase in supply.

47. Figure II-11.2: The Welfare Loss from a Subsidy to Producers S0S0 S SUB=$20 D Q P $120 $20 $00 P 0 = $70 P 1 = $60 P 2 = $80 Q 0 = 1,000 1,200 = Q 1 WL

48. 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)

49. 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 Rest of Economy Market Producer Subsidy Resources Output Increases Output Decrease s (Lower Valued Use) Producer Subsidy in Market is equivalent to a tax on the Rest of Economy

50. Table II-12: The Market for Rental Housing

51. Figure II-12.1: The Effect of a Price Ceiling on a Market, Part 1 $200 P C = $400 $700 $1,200 400 1,0001,600 $1,000 D S Q P ED

52. Figure II-12.2: The Effect of a Price Ceiling on a Market, Part 2 $200 P C = $400 $700 $1,200 400 1,0001,600 $1,000 D S Q P ED PS’ CS’ WL

53. Steps 1. Start with Social Welfare Maximum, P = $700 and Q = 1,000 2. Impose a price ceiling (PC) at $400. 3. Suppliers decrease the number of units offered from 1,000 to 400. This is a perverse effect of price ceilings since a shortage should cause an increase in price as well as quantity supplied (the supply effect) not a decrease in quantity supplied. 4. The marginal consumer values the 400 th unit at $1,000. (PC increase price to marginal consumer.) 5. PS’ = 1/2(400)($400- $200) = $40,000 6. CS’ = 1/2(400)($1,200 - $1,000) + (400)($1,000- $400) = $280,000 7. WL = 1/2(1000 - 400)($1,000 - $400) = $180,000

54. Figure II-12.3: Effect of Rent Controls on Nearby Uncontrolled Housing Markets D0D0 D1D1 S Q P $700 1,000 2,000 $900

55. Table II-13: The Market for Corn

56. Figure II-13: The Effect of a Price Floor on a Market Q P S D $7 P F = $10 $12 $2 400 1,000 1,600 ES

57. Figure II-14: The Rationing Function of Markets S D Q P 1,000 $20 $70 $120