Transcript PowerPoint Presentation - Economics 1: Fall 2010

Economics 2: Spring 2014
J. Bradford DeLong <[email protected]>; Maria
Constanza Ballesteros <[email protected]>;
Connie Min <[email protected]>
http://delong.typepad.com/sdj/econ-2-spring-2014/
Economics 2: Spring 2014:
Supply and Demand Algebra:
Surplus
http://delong.typepad.com/sdj/econ-1-spring-2014/
February 5, 2014, 4-5:30
101 Barker, U.C. Berkeley
Consider a Market in Equilibrium
How Happy Are the Demanders
with the Deals They Get?
How Happy Are the Demanders
with the Deals They Get?
• They pay 6 x 90 =
540
• What is what they
get worth to
them?
Consumer Willingness to Pay for
the Average Unit Purchased
• They pay 6 x 90 =
540
• What is what they
get worth to them?
• Well, the first unit is
worth a little less
than 100 and the
sixth unit is worth a
little more than 90,
so on average 95
Calculating the Average Willingness to
Pay for Units Purchased
• They pay 6 x 90 = 540
• What is what they get
worth to them?
• Well, the first unit is
worth a little less than
100 and the sixth unit
is worth a little more
than 90, so on average
95.
• Same for the second
and the fifth, and the
third and the fourth…
• The average unit is
worth 95.
Total Value of the Market to
Producers
• They pay 6 x 90 = 540
• What is what they get
worth to them?
• Well, the first unit is worth
a little less than 100 and the
sixth unit is worth a little
more than 90, so on
average 95.
• Same for the second and
the fifth, and the third and
the fourth…
• The average unit is worth
95.
• Since there are six units, the
opportunity to buy is worth:
• (95-90) x 6 = 30
The Producer Surplus Triangle
• They pay 6 x 90 = 540
• What is what they get worth
to them?
• Well, the first unit is worth a
little less than 100 and the
sixth unit is worth a little more
than 90, so on average 95.
• Same for the second and the
fifth, and the third and the
fourth…
• The average unit is worth 95.
• Since there are six units, the
opportunity to buy is worth:
• (95-90) x 6 = 30
• Or the area of this triangle: the
consumer surplus triangle:
The Producer and Consumer
Surplus Triangles
• Consumers
– Average unit is worth half
the difference between
ZQ parameter and price
– Subtract off price,
multiply, and find that
consumer surplus is the
consumer surplus
triangle.
• Producers
– Average unit costs half
the difference between
the ZQ parameter and
price
– Subtract from price,
multiply, and find that
producer surplus is the
producer surplus triangle.
Ladies and Gentlemen, to Your
i>Clickers…
• D: P=100-(5/3)Q
• S: P=15Q
• What is the
producer surplus?
– A. 60
– B. 30
– C. 540
– D. 270
– E. None of the
above
Ladies and Gentlemen, to Your
i>Clickers…
• D: P=100-(5/3)Q
• S: P=15Q
• What is the producer surplus?
–
–
–
–
–
A. 60
B. 30
C. 540
D. 270
E. None of the above
• The first unit made costs a
little more than zero to make,
the last unit made a little less
than 90…
• Thus the average unit made
costs 45…
• Thus on 6 units the producers
make 270
Ladies and Gentlemen, to Your
i>Clickers…
• S: P=15Q
• D: P=100-10Q
• What is the consumer
surplus?
– A. 80
– B. 30
– C. 120
– D. 160
– E. None of the above
Ladies and Gentlemen, to Your
i>Clickers…
• S: P=15Q
• D: P=100-10Q
• What is the consumer surplus?
–
–
–
–
–
A. 80
B. 30
C. 120
D. 160
E. None of the above
• With this demand curve, the
equilibrium P=60, Q=4
• The average unit is worth 80 to
consumers
• (80 – 60) x 4 = 80
Ladies and Gentlemen, to Your
i>Clickers…
• S: P=15Q
• D: P=100-(5/3)Q
• What is the consumer
surplus?
– A. 80
– B. 30
– C. 120
– D. 160
– E. None of the above
Ladies and Gentlemen, to Your
i>Clickers…
• S: P=15Q
• D: P=100-(5/3)Q
• What is the consumer surplus?
–
–
–
–
–
A. 80
B. 30
C. 120
D. 160
E. None of the above
• The equilibrium price is 90; six
units are bought; the average
unit is worth 95 to consumers
• (95 – 90) x 6 = 30
A Question…
• S: P=15Q
• With demand P=100-(5/3)Q
– We had 30 of consumer surplus
• With demand P=100-10Q
– We had 80 of consumer surplus
• In the second case, demand is
weaker—consumers don’t like
the good as much.
• So how is it that they get more
surplus out of the market in
the second case than the first?
A Question…
• S: P=15Q
• With demand P=100-(5/3)Q
– We had 30 of consumer surplus
• With demand P=100-10Q
– We had 80 of consumer surplus
• In the second case, demand is
weaker—consumers don’t like
the good as much.
• So how is it that they get more
surplus out of the market in
the second case than the first?
– Anyone?
A Question…
• S: P=15Q
• With demand P=100-(5/3)Q
– We had 30 of consumer surplus
• With demand P=100-10Q
– We had 80 of consumer surplus
• In the second case, demand is
weaker—consumers don’t like
the good as much.
• So how is it that they get more
surplus out of the market in
the second case than the first?
– Anyone?
– Not a rhetorical question…
A Question…
• S: P=15Q
• With demand P=100-(5/3)Q
– We had 30 of consumer surplus
• With demand P=100-10Q
– We had 80 of consumer surplus
• In the second case, demand is
weaker—consumers don’t like the
good as much.
• So how is it that they get more
surplus out of the market in the
second case than the first?
– Anyone?
– Not a rhetorical question…
– Bueller? Ferris Bueller?
A Question…
• S: P=15Q
• With demand P=100-(5/3)Q
– We had 30 of consumer surplus
• With demand P=100-10Q
– We had 80 of consumer surplus
• In the second case, demand is weaker—
consumers don’t like the good as much.
• So how is it that they get more surplus out
of the market in the second case than the
first?
– Anyone?
– Not a rhetorical question…
– Bueller? Ferris Bueller?
• Email me your answers tonight to:
[email protected]; 200 words max…
•
What’s Wrong with Surplus as a
Human Societal Welfare
Measure?
Large demand for
food to feed the
army and its urban
logistics train
• Kido Butai
– The IJN’s
spearhead in 1942
– Visits the Indian
Ocean
• The rural juteprocessing farm
workers of
Bengal…
The Jute-Processing Industry
Collapses…
• What can the
jute workers sell
to earn
money?...
• What is their
willingness-topay for food?...
• How much food
can they buy?...
• What happens
to them?...
Deaths in the Bengal Famine of
1942
• Between 1.5
and 4 million
deaths
• Ample food in
India as a whole
• Yet there is no
money to be
made by
shipping rice
from U.P. to
Bengal
• Where is the government
of George Windsor,
Kaiser-i-Hind in all this?
• His Prime Minister
Winston Churchill,
telegrams:
• If food is so scarce,
why hasn't Gandhi
died yet?
• Not Winston Churchill’s
finest hour
Deaths in the Bengal Famine of
1942: 1.5M to 4 M
• Yet keeping the food of India in U.P. and
Maharashtra in 1942-1943—where there
is a substantial willingness to pay—is the
wealth-maximizing choice…
• Wealth maximization ≠ human wellbeing
– Cf.: Amartya Sen,*Poverty and Famines: An
Essay on Entitlement and Deprivation*
• http://goo.gl/wqCbnZ
This Is What Karl Marx Was
Getting at
• Capital, vol. I, ch. 6: “The Buying and Selling of
Labour-Power” <http://goo.gl/W5GUDh>:
– <snark> [The market] is in fact a very Eden…. There
alone rule Freedom, Equality, Property and Bentham.
Freedom, because both buyer and seller… contract as
free agents…. Equality, because each… exchange[s]
equivalent for equivalent. Property, because each
disposes only of what is his…. And Bentham, because
each looks only to himself…..
– And just because they do so, do they all, in accordance
with the pre-established harmony of things, or under
the auspices of an all-shrewd providence, work
together to their mutual advantage, for the common
weal and in the interest of all…</snark>
This Is What Karl Marx Was
Getting at
• Capital, vol. I, ch. 6: “The Buying and Selling of
Labour-Power” <http://goo.gl/W5GUDh>:
– <serious>On leaving this sphere of simple…
exchange… which furnishes the species
Freetraderus Vulgus with his… ideas… we can
perceive a change….
– The one with an air of importance, smirking, intent
on business; the other, timid and holding back,
like one who is bringing his own skinto market and
has nothing to expect but—a skinning…</serious>