🙋 Student Q&A (Lecture 9)

Click here to learn about timestamps and my process for answering questions. Section agendas can be found here. Email office hour questions to munger.e1010@gmail.com. PS1Q2=“Question 2 of Problem Set 1”

📅 Questions covered Thursday, Apr 16

🕣 8:26pm and 8:30pm
❔Interpretation question: #9 what does a perfectly inelastic supply curve mean?

🕣 8:27pm
❔ Why does CS → ∞ when Demand is perfectly inelastic?

✔ The key idea in consumer surplus is that what people are willing to pay reveals the benefit they get from consuming the good. If someone is willing to pay $1,000,000, they must be getting$ 1,000,000 in benefit from it. Why? Because they would not buy it otherwise, and they are the best judges of the benefit they get.

🕣 8:38pm
❔ What is the market clearing price?

✔ The market-clearing price is the price at which supply equals demand, so it is also the equilibrium price. The term “market clearing” comes from the idea of merchants bringing goods to a marketplace and selling them all by the end of the day, so that the market is “cleared” of goods.

🕣 8:39pm
❔ Interpretation Q 13: “What will be the cost to the government?” Does the government buy the surplus.

✔ Yes: “The government will therefore buy up as many jelly beans as necessary to keep the price at $1 per pound” That’s the surpluse.

🕣 9:22ish
❔ Why isn’t D DWL in price floor when the government buys the surplus?

✔ see video

🕣 9;32pm
❔ What happens when S or D is perfectly elastic? Does TS = CS? PS?

✔

🕣 9:34pm
❔ If price floor is below equilibrium price, does that mean that CS/PS/TS is unchanged?

✔ see video https://1010.robmunger.com/l9/ceilingvsfloor/

🕣 9:45ish
❔ Pareto Efficiency?!?!

✔

🕣 9:52pm
❔ I have the following questions :

If a supply curve is perfectly inelastic, the curve is vertical. If the government implements a price ceiling, what is the consumer surplus in this case? is this still consider Paretto Efficient? ✔

🕣 9:55pm
❔ I have the following questions :

For a Paretto efficiency to exist, can we say in this case, there is ZERO dead weight loss? And if there is dead weight loss, there is no Paretto efficiency?

✔

🕣 10:00pm
❔ Could you please go over or provide another example of the Welfare table for a Price Floor for both cases when the Govt. does not buy surplus and when it does? Thank you so much!