微觀經(jīng)濟(jì)學(xué) 平狄克《微觀經(jīng)濟(jì)學(xué)》課后答案 9

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CHAPTER9

THEANALYSISOFCOMPETITIVEMARKETS

TEACHINGNOTES

WiththeexceptionofChapter1,Chapter9isthemoststraightforwardandeasilyunderstoodchapterinthetext.Thechapterbeginswithareviewofconsumerandproducersurplus.Ifyouhavepostponedthesetopics,youshouldcarefullyexplainthedefinitionofeach(refertoteachingsuggestionsinChapters4and8).WhileSection2discussesefficiencyincompetitivemarketsbycomparingcompetitiveoutcomeswiththoseundermarketfailure,moreanalyticdiscussionofefficiencyisleftforChapter16.

Thepresentationineachsectionofthischapterfollowsthesameformat:thereisageneraldiscussionofwhymarketinterventionleadstodeadweightloss,followedbythepresentationofanimportantpolicyexample.Eachsectionisdiscussedinonereviewquestionandappliedinatleastoneexercise.Exercise(1)focusesonminimumwagespresentedinSection9.3.Exercises(4)and(5)reinforcediscussionofpricesupportsandproductionquotasfromSection9.4.Theuseoftariffsandquotas,presentedinSection9.5,canbefoundinExercises(3),(6),(7),(10),and(12).Taxesandsubsidies(Section9.6)arediscussedinExercises(2),(8),and(14).Exercise(9)reviewsnaturalgaspricecontrolsinExample9.1,acontinuationofExample2.7.Exercise(4)maybecomparedtoExample9.4anddiscussedasanextensionofExample2.2.

REVIEWQUESTIONS

1.Deadweightlossreferstothebenefitslosttoeitherconsumersorproducerswhenmarketsdonotoperateefficiently.Thetermdeadweightdenotesthatthesearebenefitsunavailabletoanyparty.Forexample,aneffectivepriceceilingreducesthepricebelowthemarketequilibriumprice.Thispolicycausesalossofbothconsumerandproducersurpluses.Consumersurplusdecreasesbecauselessispurchasedandproducersdonotcaptureallofthisdecrease.Producersurplusdecreasesbecauselessisproducedandconsumersdonotcaptureallofthisdecrease.Surplusnotcapturedbymarketparticipantsisdeadweightloss.

2.Whenthesupplycurveiscompletelyinelastic,theimpositionofaneffectivepriceceilingtransfersalllossinproducersurplustoconsumers.Consumersurplusincreasesbythedifferencebetweenthemarket-clearingpriceandthepriceceilingtimesthemarket-clearingquantity.Consumerscapturealldecreasesintotalrevenue.Therefore,nodeadweightlossoccurs.

3.Ifthesupplycurvewasperfectlyinelasticanddemandincreases,apriceceilingwillincreaseconsumersurplus.

Ifthedemandcurveisinelastic,pricecontrolsmayresultinanetlossofconsumersurplusbecauseconsumerswillingtopayahigherpriceareunabletopurchasetheprice-controlledgoodorservice.Thelossofconsumersurplusisgreaterthanthetransferofproducersurplustoconsumers.

However,ifdemandiselastic(andsupplyisrelativelyinelastic)consumersintheaggregatewillenjoyanincreaseinconsumersurplus.

4.Becauseahigherpriceincreasesrevenueanddecreasesdemand,someconsumersurplusistransferredtoproducersbutsomeproducerrevenueislostbecauseconsumerspurchaseless.Theproblemwithapricefloororminimumpriceisthatitsendsthewrongsignaltoproducers.Thinkingthatmoreshouldbeproducedasthepricegoesup,producersincurextracosttoproducemorethanwhatconsumersarewillingtopurchaseatthesehigherprices.Theseextracostscanoverwhelmgainscapturedinincreasedrevenues.Thus,unlessallproducersdecreaseproduction,aminimumpricecanmakeproducersasawholeworseoff.

5.Municipalauthoritiesusuallyregulatethenumberoftaxisthroughtheissuanceoflicenses.Whenthenumberoftaxisisbelowthatwhichitwouldbewithoutregulation,thosetaxisinthemarketmaychargeahigher-than-competitiveprice.

Stateauthoritiesusuallyregulatethenumberofliquorlicenses.Byrequiringthatanybarorrestaurantthatservesalcoholhavealiquorlicenseandthenlimitingthenumberoflicensesavailable,theStatelimitsentrybynewbarsandrestaurants.Thislimitationallowsthoseestablishmentsthathavelicensestochargeahigherpriceforalcoholicbeverages.

Federalauthoritiesusuallyregulatethenumberofacresofwheatorcorninproductionbycreatingacreagelimitationprogramsthatgivefarmersfinancialincentivestoleavesomeoftheiracreageidle.Thisreducessupply,drivingupthepriceofwheatorcorn.

6.Pricesupportsandacreagelimitationscostsocietymorethanthedollarcostoftheseprogramsbecauselessoutputisproduced,drivingpricesabovecompetitivelevels.Thissmalleroutputdecreasesconsumersurplusandleadstodeadweightloss.(Note:Thislossdoesnotincludepaymentstofarmers,becausethesepaymentsonlyredistributethesurplusfromnon-farmerstofarmers.Thus,thereisnolosstosocietyasawholefromthetransferofsurplus.)

7.Changesindomesticconsumerandproducersurplusesarethesameunderimportquotasandtariffs.Therewillbealossin(domestic)totalsurplusineithercase.However,withatariff,thegovernmentcancollectrevenueequaltothetarifftimesthequantityofimportsandtheserevenuescanberedistributedinthedomesticeconomytooffsetthedomesticdeadweightlossby,forexample,reducingtaxes.Thus,thereislessofalosstothedomesticsocietyasawhole.Withtheimportquota,foreignproducerscancapturethedifferencebetweenthedomesticandworldpricetimesthequantityofimports.Therefore,withanimportquota,thereisalosstothedomesticsocietyasawhole.Ifthenationalgovernmentistryingtoincreasewelfare,itshoulduseatariff.

8.Theburdenofataxandthebenefitsofasubsidydependontheelasticitiesofdemandandsupply.Iftheratiooftheelasticityofdemandtotheelasticityofsupplyissmall,theburdenofthetaxfallsmainlyonconsumers.Ontheotherhand,iftheratiooftheelasticityofdemandtotheelasticityofsupplyislarge,theburdenofthetaxfallsmainlyonproducers.Similarly,thebenefitofasubsidyaccruesmostlytoconsumers(producers)iftheratiooftheelasticityofdemandtotheelasticityofsupplyissmall(large).

9.Ataxcreatesdeadweightlossbyartificiallyincreasingpriceabovethefreemarketlevel,thusreducingtheequilibriumquantity.Thisreductionindemandreducesconsumeraswellasproducersurpluses.Thesizeofthedeadweightlossdependsontheelasticitiesofsupplyanddemand.Astheelasticityofdemandincreasesandtheelasticityofsupplydecreases,i.e.,assupplybecomesmoreinelastic,thedeadweightlossbecomeslarger.

EXERCISES

1.

a.Inafree-marketequilibrium,LS=LD.Solvingyieldsw=$4andLS=LD=40.Iftheminimumwageis$5,thenLS=50andLD=30.Thenumberofpeopleemployedwillbegivenbythelabordemand,soemployerswillhire30millionworkers.

Figure9.1.a

b. Letwdenotethewagereceivedbytheemployee.Thentheemployerreceivingthe$1subsidyperworkerhouronlypaysw-1foreachworkerhour.AsshowninFigure9.1.b,thelabordemandcurveshiftsto:

LD=80-10(w-1)=90-10w,

wherewrepresentsthewagereceivedbytheemployee.

Thenewequilibriumwillbegivenbytheintersectionoftheoldsupplycurvewiththenewdemandcurve:

Therefore,90-10W**=10W**,orW**=$4.5perhour

L**=10(4.5)=45millionpersonsemployed.

Figure9.1.b

2.a. Tofindtheequilibriumpriceandquantity,equatesupplyanddemandandsolveforQEQ:

10-Q=Q-4,orQEQ=7.

SubstituteQEQintoeitherthedemandequationorthesupplyequationtoobtainPEQ.

PEQ=10-7=3,

or

PEQ=7-4=3.

b.Withtheimpositionofa$1.00taxperunit,thedemandcurveforwidgetsshiftsinward.Ateachprice,theconsumerwishestobuyless.Algebraically,thenewdemandfunctionis:

P=9-Q.

Thenewequilibriumquantityisfoundinthesamewayasin(2a):

9-Q=Q-4,orQ*=6.5.

Todeterminethepricethebuyerpays,,substituteQ*intothedemandequation:

=10-6.5=$3.50.

Todeterminethepricethesellerreceives,,substituteQ*intothesupplyequation:

=6.5-4=$2.50.

c.TheoriginalsupplycurveforwidgetswasP=Q-4.Withasubsidyof$1.00towidgetproducers,thesupplycurveforwidgetsshiftsoutward.Rememberthatthesupplycurveforafirmisitsmarginalcostcurve.Withasubsidy,themarginalcostcurveshiftsdownbytheamountofthesubsidy.Thenewsupplyfunctionis:

P=Q-5.

Toobtainthenewequilibriumquantity,setthenewsupplycurveequaltothedemandcurve:

Q-5=10-Q,orQ=7.5.

ThebuyerpaysP=$2.50,andthesellerreceivesthatpriceplusthesubsidy,i.e.,$3.50.Withquantityof7,500andasubsidyof$1.00,thetotalcostofthesubsidytothegovernmentwillbe$7,500.

3.Figure9.3.ashowsthegainsandlossesfromaper-poundsubsidywithdomesticsupply,S,anddomesticdemand,D.PSisthesubsidizedprice,PBisthepricepaidbythebuyers,andPEQistheequilibriumpricewithoutthesubsidy,assumingnoimports.Withthesubsidy,buyersdemandQ1.FarmersgainamountsequivalenttoareasAandB.Thisistheincreaseinproducersurplus.ConsumersgainareasCandF.Thisistheincreaseinconsumersurplus.DeadweightlossisequaltotheareaE.ThegovernmentpaysasubsidyequaltoareasA+B+C+F+E.

Figure9.3.a

Figure9.3.bshowsthegainsandlossesfromaper-poundtariff.PWistheworldprice,andPEQistheequilibriumprice.Withthetariff,assumedtobeequaltoPEQ-PW,buyersdemandQT,farmerssupplyQD,andQT-QDisimported.FarmersgainasurplusequivalenttoareaA.ConsumersloseareasA,B,C;thisisthedecreaseinconsumersurplus.DeadweightlossisequaltotheareasBandC.

Figure9.3.b

Withoutmoreinformationregardinggovernmentpolicy,itseemssensibletoassumethattheJapanesegovernmentwouldavoidpayingsubsidiesbychoosingatariff,butthericefarmerswouldpreferthesubsidy.

4.a. Equatingdemandandsupply,QD=QS,

28-2P=4+4P,orP=4.

Todeterminetheequilibriumquantity,substituteP=4intoeitherthesupplyequationorthedemandequation:

QS=4+4(4)=20

and

QD=28-2(4)=20.

b.Becausethefreemarketsupplybyfarmersis20billionbushels,the25percentreductionrequiredbythenewPayment-In-Kind(PIK)Programwouldimplythatthefarmersnowproduce15billionbushels.Toencouragefarmerstowithdrawtheirlandfromcultivation,thegovernmentmustgivethem5billionbushels,whichtheysellonthemarket.

Becausethetotalsupplytothemarketisstill20billionbushels,themarketpricedoesnotchange;itremainsat$4perbushel.Thefarmersgain$20billion,equalto($4)(5billionbushels),fromthePIKProgram,becausetheyincurnocostsinsupplyingthewheat(whichtheyreceivedfromthegovernment)tothemarket.ThePIKprogramdoesnotaffectconsumersinthewheatmarket,becausetheypurchasethesameamountatthesamepriceastheydidinthefreemarketcase.

c.Taxpayersgainbecausethegovernmentisnotrequiredtostorethewheat.AlthougheveryoneseemstogainfromthePIKprogram,itcanonlylastwhiletherearegovernmentwheatreserves.ThePIKprogramassumesthatthelandremovedfromproductionmayberestoredtoproductionwhenstockpilesareexhausted.Ifthiscannotbedone,consumersmayeventuallypaymoreforwheat-basedproducts.Finally,farmersaretaxpayerstoo.Sinceproducingthewheatmusthavecostsomething,theprogramoffersthemawindfallprofit.

5.a.Ifthequantitiesdemandedandsuppliedareveryresponsivetopricechanges,thenagovernmentprogramthatdoublesthepriceofjellybeanscouldeasilycostmorethan$50million.InFigure9.5.a.i,theshadedrectangleisthecostoftheprogram.

Figure9.5.a.i

Ontheotherhand,ifthedemandandsupplycurvesareinelastic,thenitisconceivablethattheprogramcouldcostlessthan$50million.SeeFigure9.5.a.ii.

Figure9.5.a.ii

b.Whenthedemandcurveisperfectlyinelastic,thelossinconsumersurplusis$50million,equalto($0.5)(100millionpounds).Thisrepresentsthehighestpossiblelossinconsumersurplus.Therefore,ifthedemandcurvehasanyelasticityatall,thelossinconsumersurpluswouldbelessthen$50million.SeeFigure9.5.b.

Figure9.5.b

6.a. Tofindtheequationfordemand,weneedtofindalinearfunction,e.g.,

P=a+bQD,

suchthatthelineitrepresentspassesthroughtwoofthepointsinthetable,e.g.(15,10)and(12,16).First,theslope,b,isequaltothe“rise”dividedbythe“run,”

Second,wesubstituteforbandonepoint,e.g.,(15,10),intoourlinearfunctiontosolvefortheconstant,a:

,ora=20.

Therefore,.Invertingtoobtainthedemandcurveinitsusualform:

QD=40-2P.

Similarly,wemaysolveforthesupplyequation:

P=c+dQS,

passingthroughtwopoints,e.g.,(6,4)and(3,2).

Theslope,d,is

.

Solvingforc:

orc=0.

Therefore,.Invertingtoobtainthesupplycurveinitsusualform:

.

b.Thepriceelasticityofdemand,ED,isequalto

Here,isequaltotheslopeofthedemandequation,i.e.,-2.Fromthetableorthedemandequationderivedinparta,atP=9,QD=22.Substitutingintotheequationforelasticityofdemand:

TodeterminetheelasticityofdemandatP=12,QD=16,followthesameprocedure:

c.Thepriceelasticityofsupply,ES,isequalto

Here,isequaltotheslopeofthesupplyequation,i.e.,.AtP=9,QS=6.

Substitutingintotheequationfortheelasticityofsupply:

Atapriceof12,thequantitysuppliedisequalto8.Substitutingintotheformulafortheelasticityofsupply:

d.Iftherearenotraderestrictions,theworldpriceof$9.00willprevailintheU.S.Fromthetable,weseethatat$9.00domesticsupplywillbe6millionpounds.Similarly,domesticdemandwillbe22millionpounds.Importswillprovidethedifferencebetweendomesticdemandanddomesticsupply:22-6=16millionpounds.

e.Witha$9.00tariff,theU.S.pricewillbe$15(thedomesticequilibriumprice),andtherewillbenoimports.Becausetherearenoimports,thereisnorevenue.Thedeadweightlossisequalto

(0.5)(16millionpounds)($6.00)=$48million,

where16isthedifferenceatapriceof$9between22demandedand6supplied,and$6isthedifferencebetween$15and$9.

f.Withanimportquotaof8millionpounds,thedomesticpricewillbe$12.At$12,thedifferencebetweendomesticdemandanddomesticsupplyis8millionpounds,i.e.,16millionpoundsminus8millionpounds.

ThecostofthequotatoconsumersisequaltotheareaofthetrapezoidABCEinFigure9.6.f.

(12-9)(16)+(0.5)(12-9)(22-16)=$57million.

Figure9.6.f

ThegaintodomesticproducersisequaltotheareaofthetrapezoidAGFE.

Therefore,totaldomesticproducergainis

(12-9)(6)+(0.5)(9-6)(12-9)=$22.5million.

7.a. Witha$9tariff,thepriceoftheimportedmetalonU.S.marketswouldbe$18,thetariffplustheworldpriceof$9.Todeterminethedomesticequilibriumprice,equatedomesticsupplyanddomesticdemand:

P=40-2P,orP=$15.

Theequilibriumquantityisfoundbysubstitutingapriceof$15intoeitherthedemandorsupplyequations:

and

.

Theequilibriumquantityis10millionounces.Becausethedomesticpriceof$15islessthantheworldpriceplusthetariff,$18,therewillbenoimports.

b.WiththeVoluntaryRestraintAgreement,thedifferencebetweendomesticsupplyanddomesticdemandwouldbelimitedto8millionounces,i.e.QD-QS=8.Todeterminethedomesticpriceofthemetal,setQD-QS=8andsolveforP:

,orP=$12.

Atapriceof$12,QD=16andQS=8;thedifferenceof8millionounceswillbesuppliedbyimports.

8.a.Section9.6inthetextprovidesaformulaforthe“pass-through”fraction,i.e.,thefractionofthetaxbornebytheconsumer.Thisfractionis,whereESistheown-priceelasticityofsupplyandEDistheown-priceelasticityofdemand.SubstitutingforESandED,thepass-throughfractionis

Therefore,95percentofthetaxispassedthroughtotheconsumersbecausesupplyisrelativelyelasticanddemandisrelativelyinelastic.

b.Withanincreaseinthepriceofliquor(fromthelargepass-throughoftheliquortax),consumerswillsubstituteawayfromliquortobeer,shiftingthedemandcurveforbeeroutward.Withaninfinitelyelasticsupplyforbeer(aperfectlyflatsupplycurve),therewillbenochangeintheequilibriumpriceofbeer.

9.FromExample9.1,weknowthatthesupplyanddemandcurvesfornaturalgasinthe1970scanbeapproximatedasfollows:

QS=14+2PG+0.25PO

and

QD=-5PG+3.75PO,

wherePGisthepriceofgasandPOisthepriceofoil.

Withthepriceofoilat$12perbarrel,thesecurvesbecome,

QS=17+2PG

and

QD=45-5PG.

Settingquantitydemandedequaltoquantitysupplied,

17+2PG=45-5PG,orPG=$4.

Atthisprice,theequilibriumquantityis25thousandcubicfeet(Tcf).

Ifaceilingof$1isimposed,producerswouldsupply19Tcfandconsumerswoulddemand40Tcf.ConsumersgainareaA-B=57-3.6=$53.4billioninthefigurebelow.Producerslosethearea-A-C=-57-9=$66.0billion.DeadweightlossisequaltotheareaC+B,53.4-66=$12.6billion.

Figure9.9

10.a.WearegiventheequationsforthetotalmarketdemandforsugarintheU.S.andthesupplyofU.S.producers:

QD=23.86-.25P

QS=-8.19+1.07P.

Thedifferencebetweenthequantitydemandedandsupplied,QD-QS,istheamountofsugarimportedwhichisrestrictedbythequota.

Ifthequotaisincreasedfrom3billionpoundsto4billionpounds,thenwewillhaveQD-QS=4andwecansolveforQSandPfrom:

QS+4=23.86-.25P

QS=-8.19+1.07P

So

23.86-.25P-4=-8.19+1.07PorP=28.05/1.32=21.25centsperpound

and

QS=-8.19+(1.07)(21.25)=14.5billionpounds

QD=QS+4=18.5billionpounds.

b.

Figure9.10.b

ThegaininconsumersurplusisthesumoftheareasAthroughDinFigure9.10.b.Ontheotherhand,domesticproducerssufferalossofproducersurplusequaltoareaA.

Numerically:

A=(.75)(14.5)+(.75)(15.35-14.5)/2=10.88+.32=11.20

B=(.75)(15.35-14.5)/2=.32

C=(.75)(18.5-18.35)/2=.06

D=(.75)3=2.25

Thesenumbersareinbillionsofcentsortensofmillionsofdollars.

Thus,consumersurplusincreasesbyA+B+C+D=13.83=$138.3million,whiledomesticproducersurplusdecreasesbyA=11.2=$112million.

c.Whenthequotais3billionpounds,theprofitearnedbyforeignproducersarerepresentedbytheareasDandG(theworldpriceforsugarisassumedtobe12centsperpound).Whenthequotaincreasesto$4billion,theseprofitsarethenrepresentedbytheareasE,F,andinFigure9.10.b.Thechangeinprofitstoforeignproducersisthus(E+F+G)-(D+G)orE+F-D.

Numerically:

E+F=(21.25-12)[(15.35-14.5)+(18.5-18.35)]=9.25(intensofmillionsofdollars).

Thus,theprofitsearnedbyforeignproducersincreaseby9.25-2.25=7or$70million.

ThedeadweightlossofthequotadecreasesbyanamountequaltotheareasB+EandC+F.Deadweightlossthusdecreasesby.32+.06+9.25=9.63or$96.3million.

11.a.

AtapriceP=22centsperpound,thequantitydemandedQDwouldbe23.86-(.25)(22)or18.36billionpounds.ThequantitysuppliedbythedomesticproducersQSwouldbe-5.19+(1.07)(22)or18.35billionpoundswhichalmostmatchesthequantitydemanded.(Note:Thetrueequilibriumpricewithnoimportsis22.007centsperpound.)UseP=22andQ=18.35intherestoftheanswer.

Figure9.11.a

b.AtthepriceP=22,domesticdemandforsugarwillbe18.4billionpounds.Ifthegovernmentwantstoallow2.5billionpoundsofsugarimports,itmustconstrainthedomesticproducerstosupplynomorethan18.4-2.5=15.9billionpounds.Thisamountstoaquotaondomesticproducersof15.9billionpounds.Thedomesticsupplycurvewillthusbecomeverticalatthisquantity(seeFigure9.11.b).

Figure9.11.b

WenowcomparethecurrentcasewiththefreemarketequilibriumwherethepriceofsugarintheU.S.isequaltotheworldpriceof12centsperpound.TheextracosttoconsumersisthelossinconsumersurpluswhichisrepresentedbytheareasAthroughD.ThebenefittodomesticproducersistheincreaseinproducersurpluswhichisrepresentedbyareaA.TheprofitsoftheforeignproducersincreasebyanamountrepresentedbyareaD.Finally,thedeadweightlossassociatedwiththecurrentoutcomeisrepresentedbyareasBandC.

Numerically:

B=(15.9-7.7)*(19.7-12)/2=31.57

C=(20.9-18.4)*(22-12)/2=12.5

D=2.5(22-12)=25

A=[15.9(22-12)]-B=159-31.57=127.43.

Thesenumbersareinbillionsofcentsortensofmillionsofdollars

Thelossinconsumersurplusis127.43+31.57+12.5+25=196.5or$1.97billion.

Thegainindomesticproducersurplusis127.43or$1.27billion.

Theincreaseinforeignproducersurplusis25or$250million.

Thedeadweightlossis12.5+31.57=44.07or$441million.

12.Toanalyzetheinfluenceofatariffonthedomestichulabeanmarket,startbysolvingfordomesticequilibriumpriceandquantity.First,equatesupplyanddemandtodetermineequilibriumquantity:

50+Q=200-2Q,orQEQ=50.

Thus,theequilibriumquantityis50millionpounds.SubstitutingQEQequals50intoeitherthesupplyordemandequationtodetermineprice,wefind:

PS=50+50=100,

and

PD=200-(2)(50)=100.

TheequilibriumpricePis$1(100cents).

However,theworldmarketpriceis60cents.Atthisprice,thedomesticquantitysuppliedis

60=50-QS,orQS=10.

Similarly,domesticdemandattheworldpriceis

60=200-2QD,orQD=70.

Importsareequaltothedifferencebetweendomesticdemandandsupply,or60millionpounds.IfCongressimposesatariffof40cents,theeffectivepriceofimportsincreasesto$1.At$1,domesticproducerssatisfydomesticdemandandimportsfalltozero.

AsshowninFigure9.11,consumersurplusbeforetheimpositionofthetariffisequaltotheareaboundedbythedemandcurveandapriceof60cents.

(0.5)(200-60)(70)=4,900millioncentsor$49million.

Afterthetariff,thepricerisesto$1.00andconsumersurplusfallsto

(0.5)(200-100)(50)=$25million,

alossof$24million.

Domesticprofitisequaltototalrevenueminustotalcost.Beforethetariff,TR=$6million.TCisequaltotheareaunderthesupplycurveuptoaquantityof10millionpounds,i.e.,$5.5million.Therefore,profitis$500,000beforethetariff.Usingthesamemethodtocalculateprofitafterthetariff,profitisequaltothetriangleabovethesupplycurveandbelowthepriceof$1uptothequantityof50.

(0.5)(50)(50)=$12.5million.

Therefore,domesticprofitincreasesby$12million(12.5-0.5=12).

Finally,becausedomesticproductionisequaltodomesticdemandat$1,nohulabeansareimportedandthegovernmentreceivesnorevenue.Whathappenstothedifferencebetweenthelossofconsumersurplusandtheincreaseinproducerprofit?Partofthedifferenceislostthroughincreasedcost,i.e.,theareaunderthesupplycurveequalto

(0.5)(50-10)(100-60)=$8million,

andtherestisdeadweightloss:

(0.5)(70-50)(100-60)=$4million.

SeeFigure9.12.

Figure9.12

13.Ifthelabormarketiscompetitive,thatis,bothemployersandemployeestakethewageasgiven,thenshiftinganequaltaxamountfromtheemployeetotheemployerwillhavenoeffectontheamountoflaboremployedandonthewagekeptbytheemployeeaftertaxes.Theequilibriumamountoflaboremployedisdeterminedbythetotalamountoftaxpaidbybothemployeesandemployers.Thisisrepresentedbythedifferencebetweenthewagepaidbytheemployerandthewagereceivedbytheemployee.Aslongasthetotaltaxdoesn’tchange,thesameamountoflaborisemployedandthewagespaidbytheemployerandreceivedbytheemployee(aftertax)willnotchange.Hence,employeeswouldbenobetterorwors