Oct 1 Consumers, Producers and The Efficiency of Markets

Oct 1 Consumers, Producers and The Efficiency of Markets -...

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Consumers, Producers and The Efficiency of Markets Learning Objectives Examine the link between buyers’ willingness to pay for a good and the demand curve Learn how to define and measure consumer surplus Examine the link between sellers’ cost of producing a good and the supply curve Learn how to define an measure producer surplus See that the equilibrium of supply and demand maximizes total surplus in a market Context and purpose Do the equilibrium price and quantity maximize the toal welfare of buyers and sellers? Market equilibrium reflects the way markets allocate scarce resources . Whether the market allocation is desirable can be addressed by welfare economics . Normative question Welfare Economics Welfare Economics: study of how the allocation of resources affects economic well-being does not equal public assistance Buyers and sellers receive benefits from participating in the market. o Consumers surplus: buyer’s side o Producers surplus: seller’s side We will shoe that the market equilibrium maximizes these benfits. Consumer Suplus Willingness to pay The maximum amount that a buyer will pay for a good. Measures how much the buyer values the good for service. Definition Consumer surplus is the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it. The market demand curve depicts the various quantities that buyers would be
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This note was uploaded on 12/08/2009 for the course TEFLER ADM1300 taught by Professor Koppel during the Fall '09 term at University of Ottawa.

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Oct 1 Consumers, Producers and The Efficiency of Markets -...

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