Welfare EconomicsSt df hlltiffftStudy of how allocation of resources affects economic well-beingBfiid bBenefitsreceived byBuyersSellersWhat are these benefits and how do we measureWhat are these benefits and how do we measure them?Shows that market equilibrium maximizestotalShows that market equilibrium maximizes total benefits received by buyers and sellersExplainswhymarkets are usually a good way toExplains why markets are usually a good way to organize economic activity
Measuring Welfare: Consumer SurplusMeasuring Welfare: Consumer Surplus Consumer surplus(CS) is the amount a buyer is willing to pay (WTP) minus the buyer actually pays:CS= WTP–PSP$260WTPAnthony$250Suppose = $260. Flea’s CS = $300 – 260 = $40.Chad175The others get no CS because they do not buy an iPod at thisFlea300J h125they do not buy an iPod at this price. Total CS = $40JohnTotal CS = $40.
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