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Qe Q
Floor Pe
Pe Ceiling
D D
QD Qe QS Q QS Qe QD Q
Pe Producer surplus
Qe Q
Effect of Taxes
A tax imposed on the BUYER-demand curve moves left
• elasticity determines whether buyer or seller bears incidence of tax
• shaded area is amount of tax
• connet the dots to find the triangle of deadweight or efficiency loss.
Price sellers D1
receive
D2
Q
A tax imposed on the SELLER-supply curve moves left
• elasticity determines whether buyer or seller bears incidence of tax
• shaded area is amount of tax
• connet the dots to find the triangle of deadweight or efficiency loss.
Price sellers D1
receive
Q
Purely Competitive Product Market Structure
Long run equilibrium for the market and firm-price takers
Allocative and productive efficiency at P=MR=MC=min ATC
P MC AC
S P
Pe Pe MR=D=AR=P
Qe Qe Q
Q
Variations:
• Short run profits, losses and shutdown cases caused by shifts in market demand and
supply.
P P
MC
ATC MC
P
Pm ATC
PFR
D PSO
D
Q Q Qm QFR QSO
Q
MR MR
MC Variations:
P ATC • Short run profits, losses and
shutdown cases caused by shifts in
PMC market demand and supply.
Qmc
MR Q
Pure Competition Resource Market Structure
Perfectly competitive Labor Market-Wage takers
Firm wage comes from market so changes in labor demand do not raise wages.
S
Wage
Rate Wage
Rate
Wc Wc S=MRC
D=
∑ mrp’s DL=mrp
Qc Quantity
qc Quantity
Labor Market Individual Firm
Variations:
• Changes in market demand and supply factors can influence the firm’s wage and
number of workers hired.
Wc a
Wm MRP
c
Qm Qc Q
Externalities
No Externallity Negative Externality
MSC 2
P
MSC P
MSC
Pe
Pe
MSB
MSB
Q
Qo Qo Qe Q
Tax, direct controls, lawsuits, Coase theorem
Positive Externality
MSC
P P
MSC
MSC2
Pe Pe
MBC 2
MSB
MSB
Q Q
Qe Qo Qe Qo
Subsidy to buyer Subsidy to Seller