27. Deadweight Loss and The Efficiency Criterion

[rockandrock44]

You're assuming that tastes are quasilinear, correct? Because it you're not,, the (uncompensated) demand curve is the wrong curve to use when measuring Consumer Surplus.

[intromediateecon]

@rockandrock44 Technically, yes, but for CS to be a decent approximation, the quasilinear utility assumption need not literally hold. This is because CS is bounded between compensating variation and equivalent variation (the "right" measures for consumer welfare). For a demonstration of this fact, check out my videos on CV and EV (16 and 16a.). It has been a while since I have revisited these ,but I think in 16a, I demonstrate that CS lies between EV and CV. Hope that helps.

[janellsiss]

First of all,great job.Your videos have been very helpfull.

question...

i have an exercise where you first have a cournot equilibrium.you find Q and P....then you have a cartel,same there.

But then the 3rd question asks "Compute the efficiency (welfare) loss from the Cournot model as a percentage of the efficiency (welfare) loss from the Cartel.

I don't get what exactly it asks of me-any ideas?

do i draw any Figures?

[scobbe502]

great video

[intromediateecon]

@meisnern That's not quite right. The subsidy shows up in this example in the producers receiving a higher price than the consumers pay. The area "created" to the producers = B+E (addt'l PS). The area "created" to consumers =C+F. The amount *spent* by the gov't to make all this happen = B+E+C+F + G. Subtracting govt expense from PS, CS gained, we get a loss of G. You can shift the supply curve and do the analysis that way, but it is harder to keep track of PS, CS and govt spending.

[meisnern]

@intromediateecon Thanks... stupidly I lost sleep over this last night. Yes, I see your point.

Cheers

[12008Shazia]

Can you show some calculation regarding DWL due to tax ?

[josepharte]

Lifesaver.....

[StitchBeatbox]

Awesome video, 5 stars! Love your crystal clear explanations..

[Chaingangsoldiernit]

Dude, how do I calculate efficiency loss for a monopoly when the triangle is not a right angled triangle?

Equations are :

C = 50Q-0.5Q^2 MC = 50 - Q

P = 80 - 2Q MR = 80 - 4Q

Can ya help me man?

[intromediateecon]

@Chaingangsoldiernit I suggest you look at video 29 called "Monopoly Basics." The short answer is that the triangle's area is still (1/2)*b*h, but I am pretty sure my other video explains DWL in the context of monopoly better than I can type.

[Chaingangsoldiernit]

@intromediateecon nvm man..I figured it out...I got an isosceles triangle...so I took an integral between the two lines on an interval and got the area of the triangle.

[vriliotis]

you are the man

[Bullionaire90]

Does this have the same effect for income taxes?

[intromediateecon]

@Bullionaire90 In the labor market, a similar distortion happens for a percentage income tax (i.e., you are taxed 10% for each additional dollar earned). The math for a percentage income tax is a little harder, but the intuition is the same. To the extent that people respond to the tax or subsidy, there's going to be deadweight loss.

[Andressguillen]

thank you so much! well explained and very helpful.

[Fredricktator]

This is a seriously good video. I'm taking a 300 level micro econ class and this is probably the best video that i can find on youtube to help review for this class. Keep up the good work. You have done an excellent job thus far, you should be extremely proud of yourself.

[Jsuyker]

Excellent video, economically accurate and extremely helpful to me! Perfectly illustrated the theory behind why a subsidy incurs deadweight loss even though you would think it would gain economic efficiency. Thanks heaps! Just what I need for my A level exam today!

[iamdevinadams]

I just started watching your videos and they make this course seem so much more straight forward than my professor describes it. keep up the good work and thank you for helping me get through college.

[gayboy3211]

I thoroughly enjoy watching your vids. Though you are a bit dry, but so is economics, you manage to explain things coherently and I'm able to understand you better than my econ prof. So THANKS.

My only request is that you use hypothetical numbers rather than letters, specifically on DWL videos (both subsidy and taxation).

[djsnowman604]

nice and clear!

thanks

[flutey12]

hey, good vid, simple & straight forward- cheers for this!

[intromediateecon]

@flutey12

Thanks!