Chapter 7 - • If you shift demand you don’t know what happens to consumer surplus but you do know what happens to producer surplus • If you

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Chapter 7 Welfare Economics. Consumer Surplus: A mathematical measurement of someone’s willingness to pay, minus the price paid. o IE: If you go to Walmart and the price of a DVD player is $100 and you’re willing to pay $120, then the consumer surplus is $120-$100 $20. o Ask about consumer surplus graph.*** With, without tax. o This measures how much better or worse off they are. Producer Surplus: In a market with buyers and sellers, sellers receive producer surplus. This is just equal to the price they get minus the marginal cost for all the units. o Cost of item--$100, minus cost of production--$10 equals $90. o It’s not profit, it’s a dollar measure of happiness.
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Unformatted text preview: • If you shift demand, you don’t know what happens to consumer surplus, but you do know what happens to producer surplus. • If you shift supply, you don’t know what happens to producer surplus, but you do know what happens to consumer surplus. • Total surplus = CS + PS. • TS is maximized in this market and is a measure of efficiency. o Assumes no market failure. • For labor, the demand curve is for consumers, but those are the firms. o The supply curve is increasing, so the wage will decrease. o But consumers are better off by BCD, because they’re gaining those areas. o The consumers are the firms. • IE: Shortage. •...
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This note was uploaded on 04/24/2009 for the course ECON 2105h taught by Professor Staff during the Spring '08 term at University of Georgia Athens.

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