AEEI09

Lecture 3, October 12, 2009

MARSHALLIAN SURPLUS
(topic 3a)

Synopsis

To be able to evaluate effects of different positions of a country in an international division of labour

we need a measure, a way how to assess a quality of changes. Economic theory provides us with a
concept of welfare.

Consumers’ surplus
Producers’ surplus
Marshallian surplus
Welfare in closed economy
Linear supply and demand functions

Reading:
z Turnovec, F.: Political Economy of European Integration. Karolinum, Charles University
Press, Prague, 2003, chapter 3, pp. 30-52.
z Strielkowski, W. and F. Turnovec,: Labour Migration and Welfare Effects of Free
Mobility of Labour in the Common Market. In: Mejstřík M. et al., Socio-Economic
Models and Policies to Support Active Citizens: Czech Republic and Europe. Matfyzpress,
Prague 2008, pp. 105-120..

Problem set 3

3.1 Consider a partial market with demand function

q = D( p) = 150 − 2 p
and supply function
q = S ( p) = p 2 − 5
Calculate closed equilibrium price and quantity.

3.2 For market from problem 3.1 calculate consumers’ surplus, producers’ surplus and Marshallian
surplus.

3.3 Calculate closed equilibrium, consumers’ surplus, producers’ surplus and total welfare for a

D(p)= 40 - p

partial market with linear demand function

and linear supply function
S(p)= 5p - 2

3.4 Let
S(p) = -a0 + a1p
be linear supply function and
D(p) = b0 – b1p
be linear demand function on a one commodity market, where a0, b0, a1, b1 > 0.
a) Express inverse supply and inverse demand function.
b) Express consumers’ surplus and producers surplus as functions of a0, b0, a1 and b1.