L4-Welfare - Welfare Economics Chapters 7 & 8 Welfare...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Welfare Economics Chapters 7 & 8
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Welfare Economics z Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? z Welfare economics is the study of how the allocation of resources affects economic well-being. z Whether the market allocation is desirable can be addressed by welfare economics.
Background image of page 2
Question z Does equilibrium in the market result in maximum benefits, i.e., maximum total welfare, for both the consumers and the producers of the product?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1. Basic Concepts z Willingness to pay z Consumer Surplus: measures economic welfare from the buyer’s side. z Producer Surplus: measures economic welfare from the seller’s side z Total (social) surplus z Efficiency and Deadweight Loss
Background image of page 4
2. CONSUMER SURPLUS z Willingness to pay is the maximum amount that a buyer will pay for a good. z It measures how much the buyer values the good or service. z Consumer surplus is the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Two cases 1. Everyone buys either one unit of a product or does not buy at all. z Who values the product most? z Who values the product least? 2. Multi-unit consumption is allowed. z I would buy 1 apple if price = $5. z I would buy 2 apples if price = $4. z I would buy 3 apples if price = $3. z If the current market price is $3 and I buy 3 apples, how much do I gain?
Background image of page 6
Consumer Surplus z The market demand curve depicts the various quantities that buyers would be willing and able to purchase at different prices. z
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 28

L4-Welfare - Welfare Economics Chapters 7 & 8 Welfare...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online