Ch7 - a market Buyers Consumer Surplus = Willingness to Pay...

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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 Buyers 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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