For some of you this homework will be entirely review. For others, you may not have seen the Edgeworth Box before. I'd appreciate learning which is your situation by mentioning it in the comments when you submit your key.

As with the other Excel Homework, this one is due in a week at 11 PM. And if you have a question about the substance of what is going on, please post that as a comment to this post.

Hello, I have two questions regarding the excel homework. The first question is about Producer Surplus. According to what I've learnt in Econ302, I thought the PS should be (112-62)*50/2=1250, but the answer was incorrect, could you explain to me why? Another question is about DWL. When calculating DWL, the question in the homework ask about competitive equilibrium quantity, I thought it was 50, but it was also incorrect. So would please instruct me a little on how to calclate DWL?

ReplyDeleteNote that the particular numbers you refer to are specific to your alias. I've reproduced the graph you are looking at so we can comment on the underlying economics, not the numbers. (Right click on the link to open the graph in another tab.)

ReplyDeleteThe situation described in the homework is one of disequilibrium. The price is high, 250, above the equilibrium price, and well above the supply price, which is the minimum price needed to elicit the supply of 50 (112 in the diagram). Your calculation of producer surplus is done assuming the price is the supply price. You are therefore not accounting for revenue the accrues to sellers because the price is well above that. You need to add that additional revenue in to get a correct measure of the full producer surplus.

As to the deadweight loss calculation, and the question that precedes it about the competitive equilibrium quantity, again the initial situation is disequilibrium. So the quantity 50 arises because the price is 250, above the equilibrium price. You must do a different calculation where supply equals demand to determine the equilibrium quantity. It is greater than 50. When you have determined the competitive equilibrium quantity, I hope it will become apparent to you what area must be computed to determine the DWL.

ReplyDeleteI noticed when submitting this assignment through the web form it was entitled "Efficiency and Equity Concepts fall 2014." The previous assignment with the Excel tutorial had fall 2015 in the title. I was wondering, is the link to the form on this assignment correct?

ReplyDeleteThank you very much!

It's the right link. I forgot to edit the submission form.

DeleteTo find A's allocation in a pareto optimal allocation I figured group A and B we need to have the same MRS. How would you do that with algebra? or where can i find an example?

ReplyDeleteAt a Pareto optimal allocation MRSA = MRSB so YA/XA = YB/XB. That plus the fact that the two allocations add up to the endowment for the economy gives the conditions you need to solve.

Delete