Econ101September24 - c Producers opportunity cost of the...

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Econ 101 September 24, 2007 CONSUMER SURPLUS AND PRODUCER SURPLUS Pareto Efficiency = total surplus in market… kind of. When market can’t get to pareto efficiency, deadweight loss occurs I.) Demand a. Curve can be formed by asking consumers what price they are willing to pay b. Marginal willingness to pay for quantity specified c. Max prices from lowest to highest produces demand curve d. An individual buyer who pays less then his willingness to pay derives a benefit from that purchase that is called CONSUMER SURPLUS i. Individual or Marginal consumer surplus equals willingness to pay minus purchase price ii. See Handout 8 iii. Total CS is area below demand curve and above market price II.) Supply a. Maximum Quantity that producers wre willing to sell at indicated price b. What is a minimum price particular seller are willing to accept?
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Unformatted text preview: c. Producers opportunity cost of the quantity specified d. This opportunity or marginal cost represents resources the producer will have to give up to sell unit i. Individual who receives more than his cost derives a benefit from sale that is called PRODUCER SURPLUS ii. = sale price – sellers cost iii. Total Producer Surplus = area above supply curve and below market price III.) Competitive Equilibrium maximizes total surplus = INVISIBLE HAND a. Known formally as Pareto Efficiency b. Market is in pareto efficiency if no participant can become better off without making at least one other participant worse off c. Deadweight loss=amount of total lost surplus that occurs when market doesn’t clear at equilibrium...
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