Principles of Economics- Mankiw (5th) 152

Principles of Economics- Mankiw (5th) 152 - 158 PA R T T H...

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158 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE chapter work well, and the conclusion of market efficiency applies directly. More- over, our analysis of welfare economics and market efficiency can be used to shed light on the effects of various government policies. In the next two chapters we ap- ply the tools we have just developed to study two important policy issues—the welfare effects of taxation and of international trade. ± Consumer surplus equals buyers’ willingness to pay for a good minus the amount they actually pay for it, and it measures the benefit buyers get from participating in a market. Consumer surplus can be computed by finding the area below the demand curve and above the price. ± Producer surplus equals the amount sellers receive for their goods minus their costs of production, and it measures the benefit sellers get from participating in a market. Producer surplus can be computed by finding the area below the price and above the supply curve. ± An allocation of resources that maximizes the sum of
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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