7 - members of society. Equity the fairness of distribution...

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ECON 101 – BALABAN Chapter 7 Welfare economics – the study of how the allocation of resources affects economic well-being. Positive versus Normative: Positive is how things are, and normative are opinions on how things should be. Willingness to pay – the maximum amount that a buyer will pay for a good. Consumer surplus – the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it Cost – the value of everything a seller must give up to produce a good. Producer surplus – the amount a seller is paid for a good minus the seller’s cost of providing it.
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Total Surplus = Value to buyers – Cost to sellers Efficiency – the property of a resource allocation of maximizing the total surplus received by all
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Unformatted text preview: members of society. Equity the fairness of distribution of well-being among the members of society. The question of efficiency is whether the pie is as big as possible. The question of equity is whether the pie is divided fairly. Equity involves normative judgments and is harder to determine than the positive quality of efficiency. Laissez faire the economic policy of free market, literally it means allow them to do. Market power the ability to influence market prices Externalities side effects that affect people who do not purchase the good, they can be positive or negative and can cause market failure (the misallocation of resources.)...
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7 - members of society. Equity the fairness of distribution...

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