mankiw ch7 - Ch 7 Pg 1 7The Efficiency of Markets Mankiw ch...

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7 The Efficiency of Markets Mankiw ch. 7 Welfare economics = the study of how allocation of resources affects the well-being of participants in the economy (= normative rather than positive) Consumer Surplus Compare:How much is a consumer willing to pay to gain one more unit of an item? = how much does the consumer value the good = what is the maximum price? Versus how much the consumer ends up paying. Question 3, in text Bert is very thirsty on a hot day. He places the following values on bottles of water: Value of 1 st bottle $7 Value of 2 nd bottle $5 Value of 3 rd bottle $3 Value of 4 th bottle $1 This gives us Bert’s demand curve or the maximum price he is willing to pay for increasing bottles of water (Note: when we look at one individual, demand curve is not continuous) If the price is $4, how many bottles will he buy? How much does he value the bottles that he buys? How much does he pay for the bottles that he buys? The difference is called consumer surplus
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This note was uploaded on 10/02/2011 for the course ECON 1B03 taught by Professor Hannahholmes during the Spring '08 term at McMaster University.

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mankiw ch7 - Ch 7 Pg 1 7The Efficiency of Markets Mankiw ch...

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