FS08EC2106_L7 - ECON 2106-C B-C Kim Consumers, Producers...

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ECON 2106-C B-C Kim
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Consumers, Producers and the Efficiency of Markets Revisiting the Market Equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? Buyers and sellers receive benefits from taking part in the market. economics is the study of how the allocation of resources affects economic well- being.
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Consumers, Producers and the Efficiency of Markets Consumer surplus measures economic welfare from the buyer’s side. Willingness to pay is the maximum amount that a buyer will pay for a good. It measures how much the buyer values the good or service. Consumer surplus is the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it.
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Table 1: Four Possible Buyers’ Willingness to Pay
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The Demand Schedule and the Demand Curve
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Figure 1 The Demand Schedule and the Demand Curve Price of Album 0 Quantity of Albums Demand 1 2 3 4 $100 John’s willingness to pay 80 Paul’s willingness to pay 70 George’s willingness to pay 50 Ringo’s willingness to pay
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Figure 2 Measuring Consumer Surplus with the Demand Curve (a) Price = $80 Price of Album 50 70 80 0 $100 Demand 1 2 3 4 Quantity of Albums John’s consumer surplus ($20)
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Figure 2 Measuring Consumer Surplus with the Demand Curve (b) Price = $70 Price of Album 50 70 80 0 $100 Demand 1 2 3 4 Total consumer surplus ($40) Quantity of Albums John’s consumer surplus ($30) Paul’s consumer surplus ($10)
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Figure 3 How the Price Affects Consumer Surplus Consumer surplus Quantity (a) Consumer Surplus at Price P Price 0 Demand P 1 Q 1 B A C The area below the demand curve and above the price measures the consumer surplus in the market.
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FS08EC2106_L7 - ECON 2106-C B-C Kim Consumers, Producers...

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