Chapter 7 Efficiency

Chapter 7 Efficiency - Consumers, Producers, and the...

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Chapter 7 Consumers, Producers, and the Efficiency of Markets
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Welfare economics is the study of how the allocation of resources affects economic well-being. We will apply welfare economics to analyze markets and also government policies. Like Ch. 6, a combination of positive and normative analysis. 1st the positive…. Welfare Economics
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In Ch. 1, 6th principle was that markets are usually a good way to organize economic activity…. .but not always! 7th principle : Government policies can improve market outcomes… but they don’t always work as hoped! Welfare economics helps us figure out when and why markets work well or not. Same for government policies.
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Outline of Chapter 7 1. New concepts using demand and supply graph i. Consumer surplus ii. Producer surplus 2. Efficiency (started in Ch. 1) i. Define carefully 3. Show that markets can lead to efficiency. 4. Qualifications and caveats
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Click icon to add picture 2011 MERCEDES-BENZ S550 4MATIC
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Willingness to pay is the maximum amount that a consumer will pay for a good. Willingness to Pay
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Price in thousands Quantity Willingness to Pay for each additional unit 5 10 20 $100 $75 $50
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Price Quantity Willingness to Pay = Demand 5 10 20 $100 $75 $50
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is a buyer’s willingness to pay minus the amount the buyer actually pays. Consumer Surplus
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This note was uploaded on 12/30/2011 for the course ECON Econ 200 taught by Professor Clement during the Fall '11 term at Maryland.

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Chapter 7 Efficiency - Consumers, Producers, and the...

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