Economics and Statistics

Utility: The benefit consumers obtain from consuming a good or service. In basic economic models, we assume that consumers are utility maximizing agents. Utility maximization : consumers try to obtain the most satisfaction (or utility) as possible. When a person consumes one extra unit of a good or service, they experience marginal utility. When the marginal utility is equal to zero, the utility from a particular good has been maximized. The consumer increases their utility by increasing their consumption from Q1 to Q2. However, after Q2, if the consumer were to consume one more unit, they would experience negative marginal utility, decreasing their total amount of utility. Therefore, utility is maximized at Q2. When a consumer pays for a good or service at the market clearing price, they will consume up until their marginal utility equals the price of their purchase. Since there are multiple different goods and services in an economy, how...

You are tasked by your city council to find the economic surplus the market for good X creates. Furthermore, the council members want to know how the economic value is divided between the producers and the consumers. Lastly, calculate the tax burden for each party ,the dead weight loss, and the revenue that would go to the city's budget if a per unit tax of $15 is imposed on the producers. You know that the demand schedule is, and the supply curve can be modeled by the following equation; In order to find the consumer and producer surpluses, one need to first solve for the equilibrium price and quantity : Now that we know the equilibrium price and quantity we can find the consumer surplus and the producer surplus. In this problem I will demonstrate two ways to solve this exercise. The first method uses algebra, which is well suited for this type of question, since the demand and supply curves are linear. The second method is more general and involve...

Now that we know the basic principals that affect the market supply and demand curves, we can turn our attention to the welfare analysis of the market and see how the economic value  is divided between the producers and the consumers. Consumer surplus is the difference between the price a consumer is willing to pay and the current market price. The consumer surplus is equal to the area bounded from above by the demand curve and bounded from below by the equilibrium price. Producer Surplus is the difference between the price a producer is willing to sell and the current market price. This is equal to the area bounded from above by the equilibrium market price and bounded from below by the supply curve. Total economic surplus is the sum of consumer and producer surpluses. It is maximized at the equilibrium price and quantity point. Dead-weight loss is the sum producer and consumer surplus that could have been achieved had the equilibrium price and quantity prevailed...