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ec-24 - C hapter 7 Consumers Producers an d t he E f f ic...

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Chapter 7 Consumers, Producers, and the Efficiency of Markets I. Overview a. Welfare economics i. The study of how the allocation of resources affects economic well-being II. Consumer Surplus a. Willingness to pay i. Measures how much the buyer values the good 1. The buyers maximum a. Expressed by bidding ii. Definition 1. The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it 2. The benefit of buyers for participating in a market iii. What if you have two identical goods to sell 1. Then take two consumer surpluses and add together b. Using the demand curve to measure consumer surplus i. The area below the demand curve and above the price measures the consumers surplus in a market c. How a lower price raises consumer surplus i. More people are willing to pay at a lower price- thus adding people to the consumer surplus d. What does consumer surplus measure i. Goal
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1. Make judgments about desirability of market outcomes ii. Good measure of economic well being
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