Ch 7 Consumer and Producer Surplus

Ch 7 Consumer and Producer Surplus - Chapter 7 Consumers,...

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Chapter 7 Consumers, roducers Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Producers Efficiency of Markets
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Revisiting the Market Equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? arket equilibrium reflects the way markets Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Market equilibrium reflects the way markets allocate scarce resources. Whether the market allocation is desirable can be addressed by welfare economics.
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Welfare Economics Welfare economics : the study of how the allocation of resources affects economic well- being. uyers and sellers receive benefits from Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Buyers and sellers receive benefits from participating in the market. Equilibrium in the market results in maximum benefits, and therefore maximum total welfare for both the consumers and the producers of the product.
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Consumer Surplus Every buyer in an economy is only willing to pay up to a certain amount for a good or service. We define: illingness ay the maximum amount Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Willingness-to-pay : the maximum amount that a buyer will pay for a good. - measures the value the buyer places on the good - also called reservation price When a buyer actually pays less than he/she is willing to pay, they enjoy a benefit. We define:
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Consumer surplus : the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it. Copyright © 2006 Nelson, a division of Thomson Canada Ltd. The market demand curve depicts the various quantities that buyers would be willing and able to purchase at different prices. - it depicts consumers’ willingness-to-pay.
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Suppose the market price of a good is $50. $100
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Ch 7 Consumer and Producer Surplus - Chapter 7 Consumers,...

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