Microeconomics Chapter 7 Class Notes

Microeconomics Chapter 7 Class Notes - How a lower price...

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Unformatted text preview: How a lower price reduces Ps: Producer Surplus in additional units: x 5 x 10 = 25 I ncrease in PS on initial 10 Units: 10x10=100. PS x 10 x 20.. Consumer Surplus and Producer Surplus and Total Surplus. CS: (Value to Buyers)- (amount paid by buyers) = buyers gains from participating in the market.(consumer surplus) PS= (amount received by sellers)-(cost to sellers)- sellers gain from participating in the market. Total Surplus= Cs+PS or total gains from trade in a market which equals (value to buyers)- (cost to sellers). Cs=WTP-Price PS= Price-WTS/Cost ____________________+ Total Surplus=WTP-Cost. H igher the surplus more efficient the market is. An Allocation of resource is efficient if it maximizes total surplus. Efficiency means the goods are consumed by the buyers who value them most highly. The goods are produced by the producers with the lowest costs. Raising or lowering the quantity of a good would not increase total surplus.....
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Microeconomics Chapter 7 Class Notes - How a lower price...

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