Chapter 7 Lecture Outline - Economics 101H Vandan Desai...

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Economics 101H Vandan Desai P a g e | 1 Chapter 7: Consumers, Producers, and the Efficiency of Markets (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? o Market equilibrium reflects the way markets allocate scarce resources o Whether the market allocation is desirable can be addressed by welfare economics Welfare economics: study of how the allocation of resources affects economic well-being o Buyers and sellers receive benefits from taking part in the market o The equilibrium in a market results in maximum benefits, and therefore maximum total welfare for both the consumers and the producers of the product I. Consumer Surplus A. Measures economic welfare from the buyer’s side B. Willingness to Pay i. Willingness to pay – maximum amount that a buyer will play for a good ii. Measures how much the buyer values the good/service iii. Consumer surplus – the buyer’s willingness t o pay for a good minus the amount the buyer actually pays for it iv. Measures the benefit to buyers for participating in a market C. Using the Demand Curve to Measure Consumer Surplus i. Market demand curve depicts the various quantities that buyer would be willing and able to purchase at different prices ii. At any quantity, the price given by the demand curve shows the willingness to pay of the marginal buyer , the buyer who would leave the market if the price were any higher iii. The area below the demand curve and above the price measures the consumer surplus
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This note was uploaded on 10/31/2010 for the course ECON 202 taught by Professor - during the Fall '08 term at Community College of Baltimore County.

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Chapter 7 Lecture Outline - Economics 101H Vandan Desai...

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