p q d s s + q q0q0 q1q1 p0p0 p1p1 boardman et al. figure 4.3 ∆cs ∆ps ∆gs
DESCRIPTION
P Q D S Q0Q0 Q1Q1 P0P0 P1P1 Q1pQ1p Government prod’n cost Government revenues ∆Net gov’t surplus (-) ∆ CS ∆PS Government Produces directly NB = ∆ CS + ∆PS + ∆Net gov’t surplusTRANSCRIPT
P
Q
D
S
S + q
Q0 Q1
P0
P1
Boardman et al. Figure 4.3
∆CS
∆PS
∆GS
Problem with this diagram
• Shift in supply curve:– S + q
• Government cannot costlessly shift supply curve. Either:– Produces directly (movement along existing supply
curve– Lowers cost curve for all producers (investment in
infrastructure)– Subsidizes production (subsidy lowers net cost of
production, but actual resource costs are unchanged)
P
Q
D
S
Q0 Q1
P0
P1
Q1p
Government prod’n cost
Government revenues
∆Net gov’t surplus (-)
∆ CS
∆PS
Government Produces directly
NB = ∆ CS + ∆PS + ∆Net gov’t surplus
P
D
S
Q0
P0
S1
Q1
P1
∆CS
∆PS
Gov’t lowers cost for all producers
NB = Initial Investment + ∑i(∆PSi + ∆CSi)
P
D
S
Q0
P0
S1
Q1
P1
∆CS
∆PS
Gov’t pays subsidy to producers
P1+S
Subsidy
∆Net gov’t surplus (-)
NB = ∆ CS + ∆PS + ∆Net gov’t surplus