Sheet - Willingness to pay: maximum price one would like to...

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Willingness to pay : maximum price one would like to pay for a good / Individual consumer surplus, total consumer surplus, ( usually consumer surplus) /Cost: the lowest price a seller will sell a good/ individual producer surplus, total producer surplus(producer surplus ) / Total surplus : consumer surplus + producer surplus / markets are usually efficient / Ways to change to total surplus in a market : 1. reallocate consumption among customers 2. reallocate sales among sellers 3. change the quantity traded. There is no way to increase total surplus except equilibrium . 1. it allocates potential buyers who most value the good (highest willingness to pay) 2. it allocates potential buyers who most value the right to sell the good ( lowest cost) 3. it ensures every consumer who makes a purchase values more than the cost of the seller, mutually beneficial 4. ensures that every buyer who values less than the cost of the seller won't make a purchase, no mutually beneficial trade are missed. Price control: Price ceiling : a maximum price allowed for sellers to charge and Inefficiencies : 1. Inefficiently low quantity deadweight loss (the loss of total surplus caused by quantity transacted less than equilibrium quantity) 2. Inefficient allocation of consumers ( people who really want the good don't get it, people who care relatively less get it) 3. Wasted resources (people expand money, effort and time to cope with the shortage – waiting, searching etc) 4. Inefficiently low quality
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This note was uploaded on 05/21/2010 for the course ECON 102 taught by Professor Kim during the Fall '08 term at University of Illinois, Urbana Champaign.

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Sheet - Willingness to pay: maximum price one would like to...

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