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week4-082 - Benefits to Market Participants Measures of...

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1 Benefits to Market Participants Measures of economic well-being or welfare: Consumer Surplus and Producer Surplus Markets and voluntary exchange are efficient ways to organize production and allocate resources Horizontal and Vertical Interpretation of Demand Curves Horizontal… How much consumers wish to purchase at various prices Vertical… Shows the willingness to pay at various quantities The height shows the value (MB) of the good Quantity Price D $5 $3 2 3 Consumer Surplus Consumer Surplus Price Quantity, thousands per week D (MB) $3 Q* Revenue ($3 Q*) Consumer Surplus $6 Consumer Surplus = ½ Q* $3
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2 Horizontal and Vertical Interpretation of Supply Curves Horizontal… How much producers wish to sell at various prices Vertical… Shows the smallest amount a seller would be willing to accept for the good. The height is the opportunity cost (MC) of supplying the good Quantity Price S $5 $6 10 8 Producer Surplus Quantity Price (MC) $3 Q* Revenue ($3
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