Scot Wick Blog

  Government Taxation Causes A Deadweight Loss For The Economy First, watch this video: https://www.youtube.com/watch?v=dbuU8S1x0Ro&feature=youtu.be … Per Figure 1: For the economy, maximization of total consumer + producer surplus is the goal Consumer surplus (satisfaction) = the price consumers are willing to pay for a good minus the price they actually pay for it . Producer surplus (profit) = the price producers receive for a good minus their costs of producing that good. In Figure 1, maximum total surplus is at equilibrium E. … Per Figure 2: · pre-tax total surplus = consumer surplus (A + B + C) + supplier surplus (D + E + F) · government needs tax revenues, but taxation creates deadweight loss · government tax revenue = B + D · deadweight loss caused by taxation = C + E … Example of deadweight loss: Consumer surplus: Joe values a pizza at $8, the maximum he would pay for a pizza, and Jane values it at $6. The pre-tax price of pizza is $...

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5  Firm Behavior and the Organization of Industry Chapter 15 of 36  Monopoly Section 9 of 34 … Table 1 here … Marginal revenue for monopoly firms is different from marginal revenue for competitive firms. When a monopoly increases the amount it sells, there are two effects on total revenue, which equals price (P) x Quantity (Q) The price effect: P falls, which decreases total revenue. The output effect: more output is sold, Q rises, which increases total revenue. … For a competitive firm, it must sell at the given market price, so there is no price effect. When it increases production by one unit it receives the previous same market price for that unit. It does not receive any less for the units it was already selling. Because the competitive firm is a price taker, its marginal revenue equals the constant price of its ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5   Firm Behavior and the Organization of Industry Chapter 15 of 36   Monopoly Section 8 of 33 … Table 1 here … Table 1 shows a result important for understanding monopoly behavior: A monopoly firm's marginal revenue is always less than the price of its good. Column 5 shows the monopoly firm's marginal revenue. This is the amount of revenue the firm receives for each additional unit of output. When this firm is producing 3 gallons of water, it receives total revenue of $24. When this firm is producing 4 gallons of water, it receives total revenue of $28. The marginal revenue of the 4 th gallon of water is $4. … If this firm raises production of water from 3 to 4 gallons it will increase total revenue by only $4, from $24 to $28. This result even though it will sell the fourth gallon for $7. Why does total...

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5  Firm Behavior and the Or ganization of Industry Chapter 15 of 36  Monopoly Section  7 of 32 … Table 1 here … Table 1 shows data for a monopoly firm, a single producer of water for a town. The monopoly's revenue depends on the amount of water produced. Columns 1 and 2 show the monopoly's demand schedule: quantity and price · produce 1 gallon it can sell that gallon for $10 · produce 2 gallons, must lower price to $9 to sell 2 gallons · produce 5 gallons, must lower price to $6 to sell 5 gallons · produce 8 gallons, must lower price to $3 to sell 8 gallons … A graph of columns 1 and 2 of numbers would be a typical downward-sloping demand curve, like Figure 2(b) previous section. Column 3 of the table data show the monopoly firm's total revenue. Column 4 shows the firm's average revenue at each quantity le...

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5 th Ed. PART 5  Firm Behavior and the Organization of Industry Chapter 15 of 36  Monopoly Section 6 of 32 … Figure 2 here … Figure 2 – Demand Curves for Competitive and Monopoly Firms Panel (a) because competitive firms are price takers, they face horizontal demand curves. Panel (b) because a monopoly firm is the sole producer in its market, it faces the downward-sloping demand curve. The monopoly must accept a lower price if it wants to sell more output. … The key difference between a competitive firm and a monopoly firm is the monopoly can influence the price of its output. A competitive firm · is small relative to the market in which it operates · has no power to influence the price of its output · takes the price as given by the market Because a monopoly is the sole producer in its market it can alter the price of its good...

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Why it’s important to understand economics. First, watch this short video: https://www.youtube.com/watch?v=nWPrMmv1Tis From article: Why it's Important to Understand Economics William Walstad, University of Nebraska , December 1, 1998 The case for economic literacy is a strong one. George Stigler, a Nobel Laureate in economics, probably stated it best almost three decades ago when he wrote: "The public has chosen to speak and vote on economic problems, so the only open question is how intelligently it speaks and votes . " … In Stigler's view, economic literacy is special because it contributes to two classes of knowledge. #1 First, it serves as a "means of communication among people, incorporating a basic vocabulary or logic so frequently encountered the knowledge should be possessed by everyone." #2 Second, it is a "type of fundamental knowledge frequently needed and yet not susceptible to easy transmission from experts." ...