Market Regulation: Analyzing Surpluses and External Costs

This lecture discusses market regulation, focusing on the calculation of market equilibrium and the impact of external costs on buyer and seller surpluses. The instructor reviews previous exercises, highlighting the market equilibrium price and quantity, and the optimum quantity when accounting for external costs. The lecture explains how imposing a social optimum affects surpluses, illustrating the changes in buyer and seller surpluses when production is capped. The instructor also examines the effects of a unit tax on production, detailing how it shifts the supply curve and impacts market equilibrium. The discussion includes the distribution of tax burdens between buyers and sellers, emphasizing the elasticity of demand. Finally, the lecture contrasts the effects of taxes and subsidies on market outcomes, demonstrating how each approach influences total surplus and the allocation of resources. The analysis concludes with insights on the implications of these regulatory measures for market efficiency and social welfare.