Lecture 5 - Lecture 5 Econ 101 Welfare Economic *Not about...

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Lecture 5 Econ 101 Welfare Economic *Not about public assistance programs Or How allocation resources through market affects economic well-being. - Is market outcome good or bad? - Do the government policies make it better or worse? Consumer well being What is the benefit to the consumer from buying a good? Like an apple One way to measure the benefit is through willingness to pay which mean the maximum amount a buyer would pay for a good. Willingness to pay(WTP) is also known as the value Consumer surplus: The amount the consumer is willing to pay (wtp/value) Minus the amount the consumer actually has to pay(price) *Consumer surplus is a measure of net benefit to the consumer from buying a good Ex :WTP for apple=$1 and price=$.69 Then the consumer surplus=WTP-price=$.31. Another example: lets consider those 4 people who is trying to buy I pod touch for eBay and they participate an auction John $100 Paul$80 George$70 Ringo$50 Outcomes: John will buy I pod at $80.1 Net benefit to john from I pod=consumer surplus=Wtp/value$100-$80=$20
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Lecture 5 - Lecture 5 Econ 101 Welfare Economic *Not about...

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