I am a little confused about maximizing consumer surplus or producer surplus or both -
Per the Economics Book of CFA l1, at the quota amount, marginal benefit (price) exceeds marginal cost (and I agree with this point); producers gain over from the quota, as the increased price increases producer surplus greater than the producer surplus component of the deadweight loss.
We also know that the total consumer surplus and producer surplus can only be maximized at the equilibrium point (where MR = MC)
Is it only the total surplus ( consumer + producer, not the consumer surplus or producer surplus separately) can be maximized at the equilibrium point? Does it mean that from consumer surplus or producer surplus’ stand-alone perspective , each of these two surplus can be maximized at some points other than the equilibrium point?
Assuming no price discrimination, consumer surplus is maximized at equilibrium, producer surplus is maximized at the equilibrium point, and total surplus is maximized at the equilibrium point.
(With imperfect price discrimination, the producer can capture some or all of the consumer surplus; thus, it’s more difficult to conclude where each will be maximized. With perfect price discrimination, consumer surplus is always zero, producer surplus equals total surplus, so producer surplus is maximized at equilibrium.)
I believe the textbook and notes’ case/explanation (in reading #13) assumes that there is no price discrimination. You mentioned that stand-alone producer surplus is maximized at the at the equilibrium point. Then why do the textbook and notes say “producers often seek the imposition of quotas” and “producers gain over from the quota”? Why should the producers seek the imposition of quotas and give up the opportunity of maximizing their producer surplus?
Sorry, my error. (I’ve been doing that a lot today. Must be something in the air in Toronto.) I was thinking of price floors and ceilings, not production quotas.
Yes, with a production quota the producer surplus may increase, because the increased revenue from charging higher prices exceeds the decreased revenue from selling fewer goods.
Sorry, my error. (I’ve been doing that a lot today. Must be something in the air in Toronto.) I was thinking of price floors and ceilings, not production quotas.
Yes, with a production quota the producer surplus may increase, because the increased revenue from charging higher prices exceeds the decreased revenue from selling fewer goods.
So, back to your original question: total surplus is maximized at equilibrium, but not necessarily producer surplus (in isolation) or consumer surplus (in isolation).
Does it mean that from the consumer surplus or producer surplus’ " stand-alone" perspective , each of these two surplus can be maximized at some points other than the equilibrium point? And the equilibrium point is just the optimal point for the “total” surplus?
Take care S2000magician. You have been helping us a lot!!
