Microeconomics II

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.title[
# Microeconomics II
]
.subtitle[
## <div class="line-block">The Analysis of Competitive Markets</div>
]
.author[
### Guillermo Woo-Mora
]
.date[
### <div class="line-block">Paris Sciences et Lettres<br />
Spring 2025</div>
]

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Interview to Mike Johnson (R) Speaker of the U.S. House of Representatives

- **Reporter**: Republican ran on lowering prices. What would you say if costs go up because of tariffs?

- **MJ**: I'm not gonna predict, um, the outcome, um -- first of all, which tariffs will be enacted and how it will affect prices we'll have to see

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# Introduction

- Can we actually predict how certain policies will affect prices and quantities?

- Can we make qualitative and quantitative statements about this policies?

- Who benefits? Who looses?

- Are markets always working fine?

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.center2[
# Evaluating the Gains and Losses from Government Policies—Consumer and Producer Surplus
]

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## Consumer and Producer Surplus

- In an unregulated, competitive market, consumers and producers buy and sell at the prevailing market price.

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## Consumer and Producer Surplus

- In an unregulated, competitive market, consumers and producers buy and sell at the prevailing market price.

---
## Consumer and Producer Surplus

- In an unregulated, competitive market, consumers and producers buy and sell at the prevailing market price.

`$$Q_d = 11.8 - 0.855 \cdot P$$`

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## Consumer and Producer Surplus

- In an unregulated, competitive market, consumers and producers buy and sell at the prevailing market price.

`$$Q_s = 0.0155 + 0.623 \cdot P$$`

---
## Consumer and Producer Surplus

- In an unregulated, competitive market, consumers and producers buy and sell at the prevailing market price.

`$$Q_d = 11.8 - 0.855 \cdot P$$`
`$$Q_s = 0.0155 + 0.623 \cdot P$$`

---
## Consumer and Producer Surplus

- In an unregulated, competitive market, consumers and producers buy and sell at the prevailing market price.

`$$Q^* = 8, \; P^* = 5$$`

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## Consumer and Producer Surplus

- For each consumer `$i$`: `$WTP_i \geq P$` or `$WTP_i \leq P$`

---
## Consumer and Producer Surplus

- For each consumer `$i$`: `$WTP_i \geq P$` or `$WTP_i \leq P$`

---
## Consumer and Producer Surplus

- For each consumer `$i$`: `$WTP_i \geq P$` or `$WTP_i \leq P$`

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## Consumer and Producer Surplus

- Net benefit to consumer `$i$`: `$WTP_i - P$`

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## Consumer and Producer Surplus

- **Consumer surplus**: total net benefit to consumers

`$$\sum_i WTP_i - P \quad \forall \; WTP_i \geq P$$`

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## Consumer and Producer Surplus

- For each producer `$i$`: `$WTS_i \geq P$` or `$WTS_i \leq P$`

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## Consumer and Producer Surplus

- Net benefit to producer `$i$`: `$P - WTS_i$`

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## Consumer and Producer Surplus

- **Producer surplus**: the benefit that lower-cost producers enjoy by selling at the market price

`$$\sum_i P - WTS_i \quad \forall \; WTS_i \leq P$$`

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## Consumer and Producer Surplus

.pull-left[
Consumer surplus `$\approx (8 \times (12-5)) / 2 = 28$`
]

.pull-left[
Producer surplus `$\approx (8 \times (5)) / 2 = 20$`
]

---
## Welfare

Gains and losses to consumers and producers.

Together, consumer and producer surplus
measure the welfare benefit of a competitive
market.

Welfare allows us to evaluate quantitatively policies and market structures.