Ch7 - a market • Buyer’s Consumer Surplus =...

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Chapter 7: Consumers, Producers, and the Efficiency of Markets Buyers always want to pay less and sellers always want to be paid more Allocation of resources: how much each good is produced, which producers produce, which consumers consume Welfare Economics: the study of how the allocation of resources affects economic well- being Price of that balances supply and demand maximizes the total welfare Consumer Surplus Willingness to Pay Max amount the buyer will pay for good job Consumer Surplus: amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it CS = WTP - P Measures the benefits buyers receive from participating in a market Using the Demand Curve Consumer surplus is closely related to the demand curve for a product The price given by the demand curve shows the willingness to pay of the marginal buyer Demand Curve = Marginal Buyers love cupcakes The area below the demand curve and above the price measures the consumer surplus in
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Unformatted text preview: a market • Buyer’s Consumer Surplus = Willingness to Pay – Market Price • Total Area below demand curve and above the price is sum of the consumer surplus of all buyers in market for good and services, like laundry. How a Lower Prices Raises Consumer Surplus • Consumer Surplus = Area Above Price + Below Demand Curve • Increase in consumer surplus: 1. Buyers who were already buying Q1 at a price of P1 how pay less 2. New buyers enter market because willing to buy at a lower price What Does consumer Surplus Measure? • Measures the benefits that buyers receive from good as the buyers perceive it • Consumer surplus is good measure of economic well-being if policy makers want to respect the preferences of buyers Producer Surplus Cost and the Willingness to Sell • Cost: The value of everything a seller must give up to produce a good •...
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