Welfare Analysis? The Key is to Think Vertically (Part1)

What is a welfare analysis? It is when economists try to determine how a government policy (price ceiling, price floor, per-unit tax, or per-unit subsidy) will impact different groups (or stakeholders). Who are these groups? Consumers, producers, the government, and/or third parties. The key to performing a welfare analysis on a graph is to think vertically. Don't see the demand curve as the demand curve, see it as the Marginal Private Benefit (MPB) curve. Don't see the supply curve as the supply curve, see it as the Marginal Private Cost (MPC) curve. When you see these curves as the MPB and MPC curves, you should approach the graph with a vertical orientation. Why? These values are measured vertically on the graph. This is also true of the Marginal Social Cost (MSC) and Marginal Social Benefit (MSB) curves.

Basically, when doing a welfare analysis the key to all the areas that make-up the welfare analysis is to think vertically. Each good (or service) has consumer surplus, producer surplus, government revenue (or outlay), and third party cost (or benefit) associated with it - so think about these verticals above each good.

This video is made for 1st year college students or AP/IB Economics students. It focuses on foundational economic concepts.

[XY-iend]

Sending many thanks from the UK! This video made this topic so much easier to understand.

[u.sbanban]

youtube needs to start curating the content available somehow cause what am I even doing here 🤣