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Intermediate Microeconomics


2. Efficiency of Competitive Markets


The supply-demand model can be used to determine price and quantities, but we have yet to consider whether these prices and quantities are the "right" ones. Put differently, is there a price and quantity that generate more welfare than the free-market price and quantity? In these Pencasts, we define measures of consumer and producer welfare, illustrate how to calcluate consumer and producer welfare (in dollars), and use the tools of welfare economics to make a judgement about whether the competitive equilibrium is welfare maximizing. To examine the efficiency of free-market outcomes, we examine a variety of different government interventions, including limits on the number of firms, per-unit taxes, per-unit subsidies, price supports, bans on foreign imports and tariffs on foriegn imports.


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Consumer Weflare

This Screencast discusses consumer welfare. [Play ScreenCast]


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Measuring Consumer Weflare

This Screencast discusses a method commonly used to measure consumer well-being -- consumer surplus. [Play ScreenCast]


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Consumer Surplus

This Pencast defines consumer surplus and illustrates how to compute consumer surplus for an individual consumer and a market. [Play Pencast]


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Changes in Consumer Surplus: Linear Demand Function

This Pencast illustrates how an increase in price affects consumer welfare. The linearity of the demand curve allows us to use plane geometry to calculate consumer surplus. [Play Pencast]


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Changes in Consumer Surplus: Nonlinear Demand Function

This Pencast illustrates how an increase in price affects consumer welfare. Because the demand function is nonlinear, plane geometry is no longer useful. Instead, we use definite integrals to compute consumer surplus. [Play Pencast]


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Elasticity and Consumer Surplus

This Pencast illustrates that the size of consumer losses/gain from a price change depend on the (in)elasticity of demand. [Play Pencast]


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Producer Welfare

This Screencast discusses producer welfare along with how it can be measured. [Play ScreenCast]


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Producer Surplus

This Pencast defines producer surplus and illustrates how to compute producer surplus for an individual firm and a market. [Play Pencast]


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Changes in Producer Surplus: Linear Supply Function

This Pencast illustrates how an increase in price affects producer welfare. The linearity of the supply curve allows us to use plane geometry to calculate producer surplus. [Play Pencast]


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Changes in Producer Surplus: Nonlinear Supply Function

This Pencast illustrates how an increase in price affects producer welfare. Because the supply function is nonlinear, plane geometry is no longer useful. Instead, we use definite integrals to compute producer surplus. [Play Pencast]


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Elasticity and Producer Surplus

This Pencast illustrates that the size of producer losses/gain from a price change depend on the (in)elasticity of supply. [Play Pencast]


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Less than Competitive Output Lowers Welfare

This Pencast illustrates why an output level that is less than the competitive level lowers social weflare. [Play Pencast]


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More than Competitive Output Lowers Welfare

This Pencast illustrates why an output level that is greater than the competitive level lowers social weflare. [Play Pencast]


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Competition Maximizes Social Welfare

This Pencast defines total surplus (or social weflare) and contends that the competitive price and quantity is welfare maximizing. [Play Pencast]


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Limits on the Number of Firms

This Pencast illustrates how limits on the number of firms in a market affect consumer, producer and social welfare. [Play Pencast]


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Per-Unit Taxes

This Pencast illustrates how per-unit taxes affect consumer, producer and social welfare. [Play Pencast]


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Per-Unit Subsidies

This Pencast illustrates how per-unit subsidies affect consumer, producer and social welfare. [Play Pencast]


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Price Supports

This Pencast illustrates how price supports affect consumer, producer and social welfare. [Play Pencast]


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Free Trade Versus a Ban on Imports

This Pencast compares a ban on foreign imports and free trade and shows how the ban affects consumer, producer and social welfare. [Play Pencast]


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Free Trade Versus a Tariff on Imports

This Pencast compares a tariff on foreign imports and free trade and shows how the tariff affects consumer, producer and social welfare. [Play Pencast]


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