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Chapter 7 Notes

Chapter 7 Notes - Chapter 7 Welfare Economics Allocation of...

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Chapter 7 03/10/08 Welfare Economics - Allocation of resources How much of each good is produced Which producers produce it Which consumers consume it - Welfare economics Studies how the allocation of resources affects economic well being. - Willingness to pay (WTP) A buyer’s willingness to pay for a good is the maximum amount the buyer will pay for that good. WTP measures how much the buyers value the good. - Consumer Surplus (CS) The amount a buyer is willing to pay minus the amount the buyer actually pays CS = WTP – P Highest price willing to pay – Price = CS CS is the area between the P and D curve and from 0 to the quantity ½ b * h - CS = Value to buyers – amount paid by buyers = buyers’ benefit from participating in market. - PS = amount received by sellers – cost to sellers = sellers’ benefit from participating in the market. - Total surplus = CS + PS The markets allocation of resources -
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Chapter 7 Notes - Chapter 7 Welfare Economics Allocation of...

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