Lecture 3 complete version[Compatibility Mode]

Lecture 3 complete version[Compatibility Mode] - HE191...

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HE191 Principles of Economics Lecture 3 Lecture Notes Chapters 7 and 8 Lecture Notes, Chapters 7 and 8 Principles of Economics, Fourth Edition N. Gregory Mankiw
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Welfare Economics St d f h ll ti f ff t Study of how allocation of resources affects economic well-being B fi i d b Benefits received by Buyers Sellers What are these benefits and how do we measure What are these benefits and how do we measure them? Shows that market equilibrium maximizes total Shows that market equilibrium maximizes total benefits received by buyers and sellers Explains why markets are usually a good way to Explains why markets are usually a good way to organize economic activity
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Measuring Welfare: Consumer Surplus Measuring Welfare: Consumer Surplus Consumer surplus (CS) is the amount a buyer is willing to pay (WTP) minus the buyer actually pays: CS = WTP P S P $260 WTP Anthony $250 Suppose = $260. Flea’s CS = $300 – 260 = $40. Chad 175 The others get no CS because they do not buy an iPod at this Flea 300 J h 125 they do not buy an iPod at this price. Total CS = $40 John Total CS = $40.
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