Consumer surplus increase

Kremer s proposal, like those of Giiell and Fischbaum, stands midway between patents and grants.24 One of the objections raised by The Economist to Kremer s proposal is that the government would end up paying more than the consumer surplus and the welfare loss (triangles ABC and pp1 A in Figure 2.1). In the face of this situation, the new method would be clearly detrimental because it would force a tax increase to pay for the patent. Furthermore, the international nature of patents would require the existence of some kind of international coordination, not an easy task to accomplish. We are dealing, therefore, with a theoretical proposal that needs further contributions. 

Given that producers and consumers have already adapted so as to minimize their prospective losses, or to maximize their prospective gains. Figure 2 depicts for a predetermined time interval one example of the changes an air pollution increase can have upon consumer surplus and producer quasi-rent. The air pollution increase reduces the desirable properties of the output, making smaller the consumer s w llingijiess-to-pay and causing his demand... 

For example, if the demand curve shifts to D rather than D , market price will rise to P . If the supply shift from S to S is small enough, producers could thus actually see an increase in their quasi-rents. Qualitative results are unchanged, however alterations in producer quasi-rents and consumer surplus result from the pollution-caused changes in the two sectors. These two examples serve to illustrate the issues of concern here consumers and producers can bear very different economic gains or losses depending on the relative shifts of the demand and supply functions. Moreover, the distribution of these economic consequences can differ drastically with the slope of the demand function relative to the slope of the supply function. 

Implicit in the discussion immediately above is the assumption that the firm is forever locked into a particular production process and output bundle. However, the air pollution increase may differentially affect the production and the user costs of alternative processes and bundles. The firm will substitute toward the least costly alternative. Brick rather than painted wood may now, for example, enclose the firm s offices. A complete assessment of the quasi-rent consequences of the air pollution increase for the firm requires that these induced technical changes as well as production and user cost changes be taken into account. As Figure 2 demonstrates, these changes for the firm will also have consumer surplus consequences. 

H is upward-sloping because an increase in safety, if it is to leave profits unaffected, must be accompanied by a corresponding increase in prices, and vice versa. It is convex (flatter in the low s region, steeper in high s region) because it can be assumed that it is increasingly costly to provide additional safety as more total safety is provided. Incidentally, the location of the cost curves rather than the indifference curves determines H, since firms are constrained to occupy those particular isocost curves by the zero-profit assumption, whereas the existence of consumer surplus means that the level of utility obtained by consumers may vary. 

Of the demand at any given price, there is an element ch is on the margin of use if the price increased only a little, that portion of the demand is lost But with this slight level of increase, most users remain because they enjoy a consumer surplus - an indeterminate value in aggregate, but varying for each user. This is the value derived from consumption of the product (a transport service/infrastructure) over and above the price actually paid. The benefit of investment is measured by the change in consumer surplus as price levels fall, and fliis is a determinable value. 

The essential difference between enlarged reproduction and simple reproduction consists in the fact that in the latter the capitalist class and its hangers-on consume the entire surplus value, whereas in the former a part of the surplus value is set aside from the personal consumption of its owners, not for the purpose of hoarding, but in order to increase the active capital, i.e. for capitalization. 

Year 2 shows a new input of 220,000 units of constant capital incorporating the additional 20,000 units produced in the previous period and a new 105,000 units of variable capital incorporating the additional 5,000 units of variable capital. With the rate of surplus value remaining the same, a new pool of 105,000 units of surplus value is produced, and disposed of with further increases in constant capital (by 22,000) and variable capital (by 5,250). The residual volume of capitalist consumption, after funding the capital expansion, is 77,750. Note that although there is an increase in capitalist consumption, the proportion of profits consumed by capitalists falls to 74.05 per cent compared to 75.00 per cent in year 1. 

This reduction in the proportion of profits consumed has important consequences for the economy as the simulation is repeated over subsequent periods. Although Bauer was able to demonstrate that expanded reproduction is sustainable over a four-year period Grossmann showed that if the simulation is continued for 35 years then this results in economic breakdown. Table 7.1 shows a steady fall in the proportion of profits consumed until, in year 34, only 2.16 per cent are consumed. The stringent demands of capital accumulation are fulfilled with constant and variable capital increasing by 10 and 5 per cent respectively throughout the 35-year period. The problem, however, is that with variable capital failing to keep pace with constant capital the pool of surplus value extracted from variable capital also fails to keep pace. 

Whereas a reduction in production may actually increase the aggregate farm income and produce serious income distribution problems, the consequent reduction in marketable surplus would cause a significant rise in the cost to consumers, because of the inelastic consumer demand for most agricultural crops. Therefore, at the consumer level, losses based on farm prices are not appropriate and are likely to be conservative. Because of percentage markups and fixed wholesale and retail marketing costs, the cost to the consumer of agricultural losses could be twice as great as that observed at the farm level—i.e., a 300 million loss at the farm level in 1974 could represent a 600 million loss to the consumer. 

A peak in production surplus in the EC was reached in 1986. This was due not only to increasing supplies but also to a notable drop in the consumption of milkfat. The consumer turned to products with a reduced fat content. This trend applies to almost all milk products and has substantially increased the availability of milkfat for butter production (67, 144). Table 16 gives production data for the EU-15 and other countries for butter, dairy spreads, and margarine blends (145). 

Impact. Using a simple partial equilibrium model of rice supply and demand, Minten and Dor-osh (2006) show that lowering the rice import tariff by 10 percentage points would have had only a small effect on total revenues collected, because even with inelastic overall consumer demand, import demand is price elastic. The reduction in the tariff increases the demand for rice by 14 to 24 percent, depending on the assumed magnitude of the own-price elasticity of demand. If producers are also price responsive, the effect on total tariff revenue is even smaller only a 6 percent decline. The net benefits of this policy for net consumers would be between US 8.5 million and US 8.8 million, although the net benefits to all the poor, including rural surplus households, are only US 0.6 million to US 1.3 million. 

---