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Unformatted text preview: Consumers, producers, and the efficiency of markerts 22/09/2007 13:59:00 Welfare economics: the study of how the allocation of resources affects economic well being The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers CONSUMER SURPLUS willingness to pay: the max amt that a buyer will pay for a good consumer surplus: the amt a buyer is willing to pay munys the amt that is actually paid the price given by the demand curve represent the marginal buyer, the buyer that would leave the market first if the price were any higher when there are few buyers, the demand curve has steps, but when it represent a market of many buyers, there are so many teeny tiny steps that the slope appears straight. When the price is equal to the amount a buyer is willing to pay, the buyer is indifferent about the purchase, doesnt matter whether he buys it or doesnt buy it Consumer surplus is the space between the price paid and the buyers willingness to pay. o When prices fall the consumer surplus that results is composed of two parts, the extra surplus of the original buyers, and the surplus of the new buyers that entered the market at this reduced cost. The sum of their surplus is the total consumer surplus. Consumer surplus measures the benefit buyers receive from a good, as they perceive it. Consumer surplus is a good measure of economic well being if policy makers want to respect the preferences of buyers....
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