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Lecture 13-14: Welfare and
Social Choice
Charit Tingsabadh
M.Sc. Programme in Environmental
and natural resource economics
Semester 1/2006
Outline
• From positive economics to normative
economics
• What is being compared
• Measures of welfare
• Examples
• Empirics
Key Concepts
•Consumer surplus: the difference between what consumers
are willing to pay and the price they pay for it. Calculated as
the area under the demand curve and above the market price
up to the quantity consumers buy.
•Producer surplus: the difference between the amount for
which a good sells and the minimum amount necessary for
sellers to be willing to produce the good.
•Deadweight loss: a net reduction in welfare from losses of
surplus by one group that are not offset by gains to another
group.
•Subsidy: a payment for the pruchase of a good; the
opposite of a tax.
•Tariff: a tax levied on imported goods.
•Quota: a statutory limit on the amount imported.
•Rent seeking: effort and spending done to gain rent or
profit from government action.
Chapter 9
Applying the Competitive Model
Perloff, Microeconomics 3rd edition
Figure 9.1
Consumer
Surplus
Figure 9.1a Consumer Surplus
Figure 9.1b Consumer Surplus
Figure 9.2 Fall in Consumer
Surplus From Roses as Price
Rises
Table 9.1 Effect of a 10% Increase in
Price on Consumer Surplus (Revenue
and Consumer Surplus in Billions of
1999 Dollars)
Page 278 Solved Problem 9.1
Figure 9.3 Producer Surplus
Figure 9.3a Producer Surplus
Figure 9.3b Producer Surplus
Page 281 Solved Problem 9.2
Figure 9.4 Why Reducing Output
from the Competitive Level Lowers
Welfare
Figure 9.5 Why Increasing Output
from the Competitive Level Lowers
Welfare
Figure 9.6 Effect of a
Restriction on the Number of
Cabs
Figure 9.7 Welfare Effects of a
Specific Tax on Roses
Figure 9.8 Welfare Effects of a
Per-Unit Subsidy on Roses
Figure 9.9
Effect of Pricing Supports in
Soybeans
Page 298 Solved Problem 9.3
Page 300 Solved Problem 9.4
Figure 9.10
Loss from Eliminating Free Trade
Figure 9.11
Effect of a Tariff (or Quota)
Table 9.2 Welfare Cost of
Trade Barriers (millions of 1999
Dollars)
Chapter 18
Externalities, Commons, and
Public Goods
Figure 18.1 Welfare Effects of
Pollution in a Competitive Market
Table
18.1
Industrial
CO2
Emission
s, 1998
Figure 18.2
Taxes to Control Pollution
Figure
18.3
CostBenefit
Analysis
of
Pollution
Application
(Page 634)
Emissions
Standards
for Ozone
Figure 18.4 Monopoly,
Competition, and Social Optimum
with Polution
Table 18.2
Property Rights
and Bargaining
Table 18.2a
Property Rights and Bargaining
Table 18.2b
Property Rights and Bargaining
Table 18.2c
Property Rights and Bargaining
Table 18.3 Rivalry and
Exclusion
Figure 18.5 Inadequate
Provision of a Public Good
Table 18.4
Private Payments for a Public
Good
Table 18.5
Voting on $300 Traffic Signals
Cross-Chapter Analysis (Page 657)
Emissions Fees Versus Standards
Under Uncertainty