ECON
Chapter 7 Notes

Chapter 7 Notes - Chapter 7 Notes Welfare economics the...

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Chapter 7 Notes Welfare economics- the study of how allocation of resources affects well-being Willingness to pay- max amount one would pay- ambivalent about purchase if it occurs at this price Consumer surplus- amount one is willing to pay for a good minus what he actually pays Measured by area below the demand curve and above the price Good measure of economic behavior only when policy makers want to respect the preferences of buyers Marginal buyer- buyer that would leave the market if the price rose at all Vs marginal seller- would leave if market price dropped Producer surplus- amount a seller is paid minus the cost to provide it Measured by area beneath price and above supply curve
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Unformatted text preview: Total Surplus= Value to buyers – Cost to sellers = willingness to buy – willingness to sell Area between demand and supply curve up to equilibrium point Efficiency- the property of resource allocation of maximizing the total surplus received by all members of society Equity- the fairness of the distribution of well-being among the members of society Free markets allocate goods to buyers who value them and producers who can produce cheaply- therefore maximizing total surplus Market power- ability of some to control market- can move it away from efficiency Market failure- inability of some markets to regulate efficiently...
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