INTRODUCTION TO
MICROECONOMICS
Graphs and Tables
Part #1
Figure II-1.1: The Increased Coordination of
Decentralized Decision-makers’ Plans
Producers
(make plans)
Error
Produce too much
Correction Consume too little
P decrease
Produce too little
Consume too much
Consumers
(make plans)
Error
Correction
P increase
Figure II-1.2: Basic Structure of a Market
COMPETITION
PRODUCERS
COOPERATION
COOPERATION
CONSUMERS
COMPETITION
Table II-2: Demand Schedule for Gasoline
P
QD
$1.00
250
$1.50
225
$2.00
200
$2.50
175
$3.00
150
$3.50
125
$4.00
100
$4.50
75
$5.00
50
$5.50
25
$6.00
00
P = Price
QD = Quantity Demanded
Figure II-2: Demand Curve for Gasoline
P
$6
$5
$4
D
Q
50
100
Table II-3: Supply Schedule for Gasoline
S
P
Q
$1.00
0
$1.50
25
$2.00
50
$2.50
75
$3.00
100
$3.50
125
$4.00
150
$4.50
175
$5.00
200
$5.50
225
$6.00
250
S
P = Price
Q = Quantity Supplied
Figure II-3: Supply Curve of Gasoline
S
P
$3
$2
$1
Q
50
100
Table II-4: The Market for Gasoline--Supply
and Demand Schedules Combined
P
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
QD
250
225
200
175
150
125
100
75
50
25
0
QS
0
25
50
75
100
125
150
175
200
225
250
Figure II-4.1: The Market for Gasoline-Supply and Demand Curves
P
S
$6.00
$3.50
D
$1.00
Q
125
Figure II-4.2: Excess Supply of Gasoline
P
S
$6.00
ES
$4.50
$3.50
D
$1.00
Q
75
125
ES = QS - QD =
175
Figure II-4.2a: Excess Supply of Gasoline
P
$6.00
S
ES
$4.50
$4.00
$3.50
D
$1.00
Q
125
75
At P = $4, ES =
175
Figure II-4.3: Excess Demand for Gasoline
P
S
$6.00
$3.50
$2.50
ED
$1.00
75
125
ED = QD - QS =
D
175
Q
Figure II-4.3a: Excess Demand for Gasoline
P
S
$6.00
$3.50
$3.00
$2.50
ED
$1.00
75
125
When P = $3.00, ED =
D
175
Q
Table II-5a: An Increase in Demand, QD1
P
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
QD0
250
225
200
175
150
125
100
75
50
25
00
QD1
300
275
250
225
200
175
150
125
100
75
50
QD2
QS
00
25
50
75
100
125
150
175
200
225
250
Figure II-5.1: An Increase in Demand
P
$7.00
$6.00
D1
$3.50
D0
125
175
Q
(1) An Increase in Demand
(2) An Increase in the Quantity Demanded
At Each Price
Table II-5b: A Decrease in Demand, QD2
P
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
QD0
250
225
200
175
150
125
100
75
50
25
00
QD1
300
275
250
225
200
175
150
125
100
75
50
QD2
QS
00
25
50
75
100
125
150
175
200
225
250
Figure II-5.2: An Increase in the Quantity
Demanded
P
$6.00
1
$3.50
$2.50
D0
125
175
Q
2
A Movement Along a Given Demand Curve
Table II-5c: Summary of a Crucial Distinction
Cause
Effect
Language
Shift in the
Demand Curve
Increase or
Decrease in
Demand
Movement Along a
Given Demand
Curve
Increase or
Decrease in the
Quantity
Demanded
Table II-5a: An Increase in Demand, QD1
P
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
QD0
250
225
200
175
150
125
100
75
50
25
00
QD1
300
275
250
225
200
175
150
125
100
75
50
QD2
QS
00
25
50
75
100
125
150
175
200
225
250
Figure II-5.3: The Market for Gasoline
Showing An Increase in Demand
P
$7.00
S
$6.00
$4.00
$3.50
D1
D0
$1.00
125
150
Q
Table II-6a: An Increase in Supply, QS1
P
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
D
Q
250
225
200
175
150
125
100
75
50
25
00
S
Q0
00
25
50
75
100
125
150
175
200
225
250
S
Q
2
S
Q1
50
75
100
125
150
175
200
225
250
275
300
Figure II-6.1: An Increase in Supply
P
S0
S1
$3.50
$1.00
$0.00
125
175
(1) Increase in Supply
(2) Increase in the Quantity Supplied
At Each Price
Q
Table II-6b: A Decrease in Supply, QS2
P
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
QD
250
225
200
175
150
125
100
75
50
25
00
QS0
00
25
50
75
100
125
150
175
200
225
250
QS2
QS1
50
75
100
125
150
175
200
225
250
275
300
Figure II-6.2: An Increase in the Quantity
Supplied
P
S0
$4.50
1
$3.50
$1.00
125
175
Q
2
A Movement Along a Given Supply Curve
Table II-6c: Summary of a Crucial Distinction
Cause
Effect
Shift in the
Supply Curve
Language
Increase or
Decrease in
Supply
Movement Along a Increase or
Given Supply Curve Decrease in the
Quantity
Supplied
Table II-6a: An Increase in Supply, QS1
P
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
D
Q
250
225
200
175
150
125
100
75
50
25
00
S
Q0
00
25
50
75
100
125
150
175
200
225
250
S
Q
2
S
Q1
50
75
100
125
150
175
200
225
250
275
300
Figure II-6.3: The Market for Gasoline Showing
An Increase in Supply
P
S0
$6.00
S1
$3.50
$3.00
$1.00
D
Q
$0.00
125 150
Figure II-7: Selling Tickets and Scalping
P
S
$100
$50
D1
D0
5,000 10,000
20,000
D0 = Regular Event Demand Curve
D1 = Very Popular Event Demand Curve
Q
Table II-8: The Market for Bicycles
P
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
QD
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
00
QS0
00
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Figure II-8.1: A Consumer’s Surplus
P
$120
CS
S
$95
$70
D
$20
Q
500
1000
CS for the 500th unit = $95 - $70 = $25
Consumer gains from trade for 500th unit.
Figure II-8.2: Consumers’ Surplus (CS)
P
$120
CS
S
$70
D
$20
Q
1000
CS = 1/2 bh = 1/2(1,000)($120 - $70) = $25,000
= Total consumer gains from trade
Figure II-8.3: A Producer’s Surplus
P
S
$120
$70
$45
PS
D
$20
Q
500
1,000
PS for the 500th unit = $70 - $45 = $25
Producer gains from trade for 500th unit
Figure II-8.4: Producers’ Surplus (PS)
P
S
$120
$70
$45
D
PS
$20
Q
500
1,000
PS = ½ (b)(h) = ½ (1000)($70 - $20) = $25,000
= Total Producer Gains from Trade
Figure II-9: The Social Welfare Maximum
P
$120
CS = $25,000
S
$70
$20
PS = $25,000
D
Q
1,000
Note: (1) The Gains from Trade are Maximized at
the Social Welfare Maximum. (2) CS + PS = $50,000
Table II-10a: Imposing Taxes on Producers
D
S
S
P
Q
Q0
Q TAX =$20
$20
2,000
00
**
$30
1,800
200
**
$40
1,600
400
00
$50
1,400
600
200
$60
1,200
800
400
$70
1,000
1,000
600
$80
800
1,200
800
$90
600
1,400
1,000
$100
400
1,600
1,200
$110
200
1,800
1,400
$120
00
2,000
1,600
How to Adjust the Supply Schedule for a Tax
• 1. Choose any quantity supplied (QS) from the supply
schedule, say 1,200.
• 2. The minimum price associated with supplying the
1,200th unit is $80.
• 3. Since imposing a tax increases the costs of
production for a producer, we should add the tax of
$20 to the price of $80, yielding $100 as the minimum
price at which a producer is willing and able to
produce the 1,200th unit.
• 4. The rest of the numbers for the new supply
schedule can be filled in noting that every $10 change
in price yields a 200 unit change in the quantity
supplied.
• 5. We now have a new supply schedule which
represents a decrease in supply
Figure II-10.1: The Effect of a Tax on the Supply
Curve
P
STAX = $20
$100
$80
S0
$40
$20
Q
1,200
Note that the tax causes a decrease in supply
Figure II-10.2: The Effect of a Tax on a Market
P
STAX=$20
CS’
$120
P1 = $80
P0 = $70
P2 = $60
TaxRev
S0
WL
$40
$20
PS’
Q1 = 800 1,000 = Q0
D
Q
Steps for Understanding How a Tax on Producers
Affects the Market and Causes a Welfare Loss
• 1. Social Welfare Maximum, Original
Equilibrium, P = $70, Q = 1,000
• 2. Impose a Tax = $20, Decrease Supply
• 3. New Equilibrium, P = $80, Q = 800
• 4. New CS’ = ½ (800)($120-$80) = $16,000
• 5. New PS’ = ½ (800)($60-$20) = $16,000
• 6. Tax Rev = (800)($20) = $16,000
• 7. Compare Before and After Tax CS and PS
– CS + PS = $50,000
– CS’ + PS’ + Tax Rev = $48,000
• 8. WL = ½ ($20)(200) = $2,000
Figure II-10.3: Effect of a Producer Tax
• Tax on producers results in misallocation of
resources: Too little output in Taxed Market and too
much output in the Rest of Economy
Producer Tax
Rest of Economy
Resources
(Lower Valued
Uses)
Market
Output
Decreases
Producer Tax on Market is equivalent to a subsidy for
the Rest of Economy
Output Increases
Table II-10b: Imposing Taxes on Producers
P
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
$22
QD
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
000
Q S0
000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
QSTAX =$4
Figure II-10.4: The Effect of a Tax on the Supply
Curve
P
$10
$2
S0
Q
Figure II-10.5: The Effect of a Tax on the Supply
Curve
P
$22
S0
$12
D
$2
5,000
Q
Table II-11: Granting a Subsidy to Producers
P
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
QD
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
00
QS0
00
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
QSSUB = $20
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
How to Adjust the Supply Schedule for a Subsidy
• 1. Choose any quantity supplied (QS) from the supply
schedule. Say 1,200.
• 2. The minimum price associated with supplying the
1,200th unit is $80.
• 3. Since granting a subsidy decreases the costs of
production for a producer, we should subtract the
subsidy of $20 from the price of $80, yielding $60 as
the minimum price that a producer is willing and
able to produce the 1,200th unit.
• 4. The rest of the numbers for the new supply
schedule can be filled in noting that every $10 change
in price yields a 200 unit change in the quantity
supplied.
• 5. We now have a new supply schedule which
represents an increase in supply
Figure II-11.1: The Effect of a Subsidy on
the Supply Curve
S0
P
SSUB=$20
$80
$60
$20
$00
1,200
Q
Note that the subsidy causes an increase in supply.
Figure II-11.2: The Welfare Loss from a Subsidy to
Producers
S0
P
$120
P2 = $80
P0 = $70
P1 = $60
SSUB=$20
WL
$20
$00
D
Q0 = 1,000 1,200 = Q1
Q
Steps for Understanding How a Subsidy to
Producers Affects the Market and Causes a
Welfare Loss
• 1. Social Welfare Maximum, Original
Equilibrium, P = $70, Q = 1,000
• 2. Grant a Subsidy = $20, Increase Supply
• 3. New Equilibrium, P = $60, Q = 1,200
• 4. Total Subsidy = (1,200)($20) = $24,000
• 5. WL = $2,000 = ½ ($20)(200)
Figure II-11.3: Effect of a Producer Subsidy
• Subsidy to producers results in misallocation of
resources: Too much output in subsidized Market and
too little output in the Rest of Economy
Producer Subsidy
Rest of Economy
Resources
(Lower Valued
Use)
Output Decrease s
Market
Output
Increases
Producer Subsidy in Market is equivalent to a tax on the
Rest of Economy
Table II-12: The Market for Rental Housing
P
$200
$300
PC $400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
QD
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
00
QS0
00
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Figure II-12.1: The Effect of a Price Ceiling on
a Market, Part 1
P
S
$1,200
$1,000
$700
PC = $400
ED
$200
400
1,000
D
1,600
Q
Figure II-12.2: The Effect of a Price Ceiling
on a Market, Part 2
P
S
CS’
$1,200
WL
$1,000
$700
PC = $400
$200
ED
D
PS’
400
1,000
1,600
Q
Steps
• 1. Start with Social Welfare Maximum, P = $700 and
Q = 1,000
• 2. Impose a price ceiling (PC) at $400.
• 3. Suppliers decrease the number of units offered from
1,000 to 400. This is a perverse effect of price ceilings
since a shortage should cause an increase in price as
well as quantity supplied (the supply effect) not a
decrease in quantity supplied.
• 4. The marginal consumer values the 400th unit at
$1,000. (PC increase price to marginal consumer.)
• 5. PS’ = 1/2(400)($400- $200) = $40,000
• 6. CS’ = 1/2(400)($1,200 - $1,000) + (400)($1,000- $400)
= $280,000
• 7. WL = 1/2(1000 - 400)($1,000 - $400) = $180,000
Figure II-12.3: Effect of Rent Controls on
Nearby Uncontrolled Housing Markets
P
S
$900
$700
D1
D0
1,000 2,000
Q
Table II-13: The Market for Corn
P
$2
$3
$4
$5
$6
$7
$8
$9
PF $10
$11
$12
D
Q
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
00
S
Q0
00
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Figure II-13: The Effect of a Price Floor on
a Market
P
S
$12
ES
PF = $10
$7
D
$2
Q
400
1,000 1,600
Figure II-14: The Rationing Function of Markets
P
$120
S
$70
D
$20
1,000
Q