An Application
• The government now
imposes a tax T on the
product. What
happens to consumer
surplus?
Consumer Surplus and
Deadweight Loss
50
D
New CS =
½ x 70 x 35
= 1225
c
P
15
10
Lost to
taxes 350
DW Loss
½ x 10 x 5 = 25
D
70 80
100
Lectures in Microeconomics-Charles W. Upton
An Application
• The government now
imposes a tax T on the
product. What
happens to consumer
surplus?
P+T
• Consumer Surplus
P
Declines
Consumer Surplus and Dead
Weight Loss
An Application
Consumer Surplus and Dead
Weight Loss
• The government now
imposes a tax T on the
product. What
This
is not
a loss.
happens
to consumer
surplus?
The money is
P+T
• transferred
Consumer Surplus
to the
Declines
government,
and P
D
Q*
An Application
• The government now
imposes a tax T on the
product. What
This
is a total
loss.
happens
to consumer
surplus?
No
one benefits P+T
• Consumer
Surplus
from the
Declines
Deadweight
Loss P
Q
Consumer Surplus and Dead
Weight Loss
Q
Surplus
Lost to
Taxes
D
thus takes the place
of other taxes.
Consumer Surplus and Dead
Weight Loss
Q
D
Q*
Q
An Application
• The demand for a
product is Q = 100-2p.
50
Deadweight
Loss
Q*
Surplus
Lost to
Taxes
Consumer Surplus and Dead
Weight Loss
D
100
1
Taxes
• The demand for a
product is Q = 100-2p.
• The good sells for 10
• The Government
imposes a tax of $5
Taxes
50
• The demand for a
product is Q = 100-2p.
• The good sells for 10
• The Government
imposes a tax of $5
D
10
70 80
Taxes
50
D
100
New CS =
½ x 70 x 35
= 1225
c
10
70 80
Taxes
50
D
100
New CS =
½ x 70 x 35
= 1225
c
10
Lost to
taxes 350
DW Loss
Surplus and Dead
½ x 10 x 5 Consumer
= 25Weight
Loss
70 80
Consumer Surplus and Dead
Weight Loss
Taxes
50
• The demand for a
product is Q = 100-2p.
• The good sells for 10
• The Government
imposes a tax of $5 15
Lost to
taxes 350
Consumer Surplus and Dead
Weight Loss
• The demand for a
product is Q = 100-2p.
• The good sells for 10
• The Government
imposes a tax of $5 15
D
10
Consumer Surplus and Dead
Weight Loss
• The demand for a
product is Q = 100-2p.
• The good sells for 10
• The Government
imposes a tax of $5 15
50
Original
CS=
1600
D
100
New CS =
½ x 70 x 35
= 1225
c
10
Consumer Surplus and Dead
Weight Loss
70 80
100
70 80
100
Monopoly Pricing
• The demand for a
product is Q = 100-2p.
• A Monopolist, who
can make the product
for nothing, sells it
$10
50
D
10
70 80
100
Consumer Surplus and Dead
Weight Loss
2
Monopoly Pricing
• The demand for a
product is Q = 100-2p.
• A Monopolist, who
can make the product
for nothing, sells it
$10
Monopoly Pricing
50
• The demand for a
product is Q = 100-2p.
• A Monopolist, who
can make the product
for nothing, sells it
$10
D
10
π = $800
80
100
Monopoly Pricing
• The Monopolist now
raises the price to $15
D
70 80
100
Monopoly Pricing
Lost to
higher price
350
100
70 80
100
70 80
100
50
D
10
Consumer Surplus and Dead
Weight Loss
Monopoly Pricing
50
• The Monopolist now
raises the price to $15
π = $1050
D
CS =
$1225
Lost to
higher price
350
10
Consumer Surplus and Dead
Weight Loss
80
15
New CS =
½ x 70 x 35
= 1225
10
15
Consumer Surplus and Dead
Weight Loss
• The Monopolist now
raises the price to $15
CS =
$1600
• The Monopolist now
raises the price to $15
π = $1050
CS =
$1600
Monopoly Pricing
50
Consumer Surplus and Dead
Weight Loss
D
10
π = $800
Consumer Surplus and Dead
Weight Loss
50
70 80
100
50
D
15
CS =
$1225
10
DW Loss
½ x 10 x 5 = 25
Consumer Surplus and Dead
Weight Loss
3
End
©2003 Charles
W. Upton
Consumer Surplus and Dead
Weight Loss
4