Econ 101 Winter 2010 Lecture 8

Econ 101 Winter 2010 Lecture 8 - Economics 101...

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Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 8
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Lecture 1 22 Announcements n Today’s reading: n Chapter 4, p 102 -- 112 n Office Hours: n Monday: 12 – 2 n Tuesday: 11 – 1 n Wednesday: 12 – 2 n Thursday: 11 – 2 n Or call (734) 358 1590 for an appointment n Quiz in discussion section this week n Problem set 4 available on CTools
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Lecture 1 33 Market Prices Quantity Price Supply Demand P* Qd*= Qs*
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Lecture 1 44 Market Outcomes Supply and Demand model lets us predict changes in Q and P from changes in market conditions n Answer positive questions: what will happen? Also raises fundamental normative questions n If we can predict what will happen, can we determine whether the outcome is desirable? n We will look at a specific interpretation of this “Are market outcomes efficient?”
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Lecture 1 55 Market Outcomes and Efficiency Suppose the market allocates resources as described by the Supply and Demand model n Is it possible to reallocate resources in such a way that we make some people better off without harming others? n If so, should we produce more or less of the good? n Should we distribute those goods that are produced differently?
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Lecture 1 66 Social Surplus Method for measuring the net benefits of allocating resources in any given way Social surplus is the difference between: 1. The value of other goods consumers were prepared to give up in order to obtain the goods produced; and 2. The value of other goods the economy had to
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