econ1_week5

econ1_week5 - Econ 1 Fall 2008 Week 5 Chapter 7 Consumers,...

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1 Chapter 7 Consumers, Producers, and the Efficiency of Markets. ± Welfare economics : the study of how the allocation of resources affects economic well-being Let’s see first the consumer well-being A buyer’s willingness to pay for a good is the maximum amount the buyer will pay for that good. Example: 4 buyers’ willingness to pay for an iPod If the price is $200, who will buy the iPod? Price Who Q d 300 Kim 125 John 175 Chad $250 Anthony WTP name $0 $50 $100 $150 $200 $250 $300 $350 01234 Econ 1 Fall 2008 Week 5
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2 Consumer surplus is the amount a buyer is willing to pay minus the amount the buyer actually pays: CS = WTP – P Consumer surplus is closely related to the demand curve Let’s calculate the consumer surplus if the price is $260 and $220 About the Staircase Shape… This D curve looks like a staircase with 4 steps, one per buyer. If there were a huge number of buyers, as in a competitive market, there would be a huge number of very tiny steps.
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econ1_week5 - Econ 1 Fall 2008 Week 5 Chapter 7 Consumers,...

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