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Welfare Economics Allocation of Resources
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How much of each good is produced; which producers produce it; which consumers consume it. Study of how allocation of resources affects economic well-being.
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Willingness to Pay (WTP) Willingness to Pay (WTP)
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The maximum amount the buyer will pay for a good. Measures how much the buyer values the good.
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WTP of Marginal Buyer Marginal Buyer
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The buyer who would leave the market if price were any higher. The height of the demand curve at any quantity.
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Total Consumer Surplus Consumer Surplus
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Amount buyer is willing to pay minus what buyer actually pays. Area under the demand curve and above the price from zero to the quantity.
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Cost 1.Buyers leaving market 2. Remaining buyers paying higher price
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Two reasons for fall in consumer surplus: The value of everything a seller must give up to produce a good.
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Cost Cost
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A measure of willingness to sell. A seller will only produce and sell their good if price exceeds it.
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Cost of Marginal Seller Marginal Seller
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The seller who would leave the market if price were any lower. The height of the supply curve at any quantity.
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Total Producer Surplus Producer Surplus
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Amount a seller is paid for a good minus the seller’s cost. Area above the supply curve and under the price, from zero to the quantity.
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Consumer Surplus 1. Sellers leaving market 2. Remaining sellers getting lower price
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Two reasons for the fall in producer surplus: (Value to buyers) – (Amount buyers pay)
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Consumer Surplus Producer Surplus
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(Amount received by sellers) – (Cost to sellers) Measures buyer’s benefit from participating in market.
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Total Surplus Producer Surplus
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benefit from participating in market. Measures total gains
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This note was uploaded on 08/30/2011 for the course ECO 2023 taught by Professor Underwood-caputo during the Fall '08 term at University of Central Florida.

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Exam2 - Flashcards - The flashcards are formatted for...

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