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EXTERNALITY DIAGRAMS-Dead Weight Welfare Loss

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Abdullah zahid
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85 views9 pages

EXTERNALITY DIAGRAMS-Dead Weight Welfare Loss

Uploaded by

Abdullah zahid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ECONOMICS

DIAGRAMS
EXTERNALITY DIAGRAMS
Costs and
Benefits MSC

Deadweight
P welfare loss

P*

MPB

MSB

Q* Q Quantity

Welfare loss in the market when there is a negative consumption


externality (MSB<MPB)
Costs and
Benefits MSC
Deadweight
welfare loss

P*

MSB

MPB

Q Q* Quantity

Welfare loss in the market when there is a positive


consumption externality (MSB>MPB)
Costs and
Benefits
MSC
Deadweight
welfare loss

MPC
P*

MSB

Q* Q Quantity

Welfare loss in the market when there is a negative production externality


(MSC>MPC)
Costs and
Benefits
MPC

Deadweight MSC
P welfare loss

P*

MSB

Q Q* Quantity

Welfare loss in the market when there is a positive production


externality (MSC<MPC)
Costs and
Benefits MSC

MPC

P*

MPB

MSB

Q* Q Quantity

Market equilibrium compared to social optimum equilibrium a market with both


negative production externality (MSC>MPC) and negative consumption externality
(MSB<MPB)
ECONOMICS
DIAGRAMS
CONSUMER AND PRODUCER SURPLUS, AND TOTAL
REVENUE
Revenue
/ price P1

a
P

AR = D

Q
Output

Consumer surplus
Price
Supply

A
P2

B D
P
E
C

Demand

O Q2 Q1
Quantity

Changes in consumer and producer surplus when price rises from P to P2


Consumer surplus decreases from A+B+D to A and producer surplus changes from C+E
to B+C

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