ec-16 - c. Buddy gets a bargain i. Willingness to pay-...

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B B R P 100 80 00 70 50 I. Welfare economics (CH 7) a. Basic i. How do market outcomes affect well-being b. Scarcity i. Wants> Resources c. But what do people want i. Goods d. How to obtain goods i. Gifts ii. Transfers iii. Trads II. 4 new ideas a. Consumer surplus b. Producer surplus c. Total surplus d. Economic efficiency III. Consumer Surplus a. Ex: Rock around the clock i. Sell at auction ii. 4 buyers each with a different price limit Buyer Willing to pay Buddy 100 Bobby 80 Richie 70 Pete 50
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b. Auction Process i. Price starts too low ii. Competition bids price up iii. Some buyers drop out 1. Buddy pays at P=? a. 80 or a lil higher b. Record goes to buyer who values it highest
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Unformatted text preview: c. Buddy gets a bargain i. Willingness to pay- Actual Price paid= difference 1. = consumer surplus c. What it all represents i. Benefit to buyer ii. Over and above consumption benefits of participating in market CS on Graph iii. Red= consumer surplus iv. Height of a curve tells what the marginal buyer is willing to pay d. Effect on CS of Price (caused by S) i. supply P & CS IV.Producer Surplus a. Ex: backyard needs mole control i. 4 mole slayers ii. Each has min acceptable price to do job iii. Min price = opportunity cost iv....
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ec-16 - c. Buddy gets a bargain i. Willingness to pay-...

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