Week3_WelfareEfficiency

Week3_WelfareEfficiency - WELFARE AND EFFICIENCY WELFARE...

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WELFARE AND EFFICIENCY
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WELFARE AND EFFICIENCY Welfare Economics studies how the allocation of resources affect economic well-being. We will be looking for an allocation point (a rather particular equilibrium) that maximizes total welfare. (You already know where this point lies. Competitive market equilibrium maximizes welfare and efficiency.) So far, we only talked about market allocations being efficient. Now, we are going to attempt to document, measure and analyze it.
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CONSUMER SURPLUS Each buyer has an absolute maximum price he/she is willing to pay for a particular good. This individual maximum is called the Willingness To Pay . It measures how much the buyer values the good. Each buyer would be eager/willing to buy the good at a price less than his willingness to pay. And he/she would refuse to buy it at a higher price. The difference between the actual price [he/she pays for the good] and the willingness to pay is called the Consumer Surplus . Consumer surplus measures the benefit buyers receive from participating in a market.
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Table 1: Four Possible Buyers’ Willingness to Pay
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The Demand Schedule and the Demand Curve
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This note was uploaded on 10/20/2011 for the course ECO 202 taught by Professor Normmiller during the Fall '08 term at Miami University.

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Week3_WelfareEfficiency - WELFARE AND EFFICIENCY WELFARE...

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