(8th edition) (the pearson series in economics) robert pindyck, daniel rubinfeld microecon 342

C H A P T E R

9

The Analysis of
Competitive Markets
CHAPTER OUTLINE
9.1 Evaluating the Gains and

I

n Chapter 2, we saw how supply and demand curves can help us
describe and understand the behavior of competitive markets. In
Chapters 3 to 8, we saw how these curves are derived and what
determines their shapes. Building on this foundation, we return to supply–demand analysis and show how it can be applied to a wide variety of economic problems—problems that might concern a consumer
faced with a purchasing decision, a firm faced with a long-range planning problem, or a government agency that has to design a policy and
evaluate its likely impact.
We begin by showing how consumer and producer surplus can be
used to study the welfare effects of a government policy—in other words,
who gains and who loses from the policy, and by how much. We also
use consumer and producer surplus to demonstrate the efficiency of
a competitive market—why the equilibrium price and quantity in a
competitive market maximizes the aggregate economic welfare of producers and consumers.
Then we apply supply–demand analysis to a variety of problems.
Because very few markets in the United States have been untouched
by government interventions of one kind or another, most of the problems that we will study deal with the effects of such interventions. Our
objective is not simply to solve these problems, but to show you how
to use the tools of economic analysis to deal with them and others like
them on your own. We hope that by working through the examples
we provide, you will see how to calculate the response of markets to
changing economic conditions or government policies and to evaluate

the resulting gains and losses to consumers and producers.

Losses from Government
Policies—Consumer and
Producer Surplus
317

9.2 The Efficiency of a
Competitive Market
323

9.3 Minimum Prices
328

9.4 Price Supports and
Production Quotas
332

9.5 Import Quotas and Tariffs
340

9.6 The Impact of a Tax
or Subsidy
345

LIST OF EXAMPLES
9.1 Price Controls and Natural
Gas Shortages
322

9.2 The Market for Human Kidneys
325

9.3 Airline Regulation
330

9.1 Evaluating the Gains and Losses
from Government Policies—
Consumer and Producer Surplus

9.4 Supporting the Price of Wheat
335

9.5 Why Can’t I Find a Taxi?
338

9.6 The Sugar Quota
We saw at the end of Chapter 2 that a government-imposed price ceiling causes the quantity of a good demanded to rise (at the lower price,
consumers want to buy more) and the quantity supplied to fall (producers are not willing to supply as much at the lower price). The result

342

9.7 A Tax on Gasoline
349

317