Exam 3 reading notes - 20:20 Market Efficiency Consumer...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
20:20 Market Efficiency Consumer surplus and producer surplus are the basic tools that economists use to  study the welfare of buyers and sellers in a market The Benevolent Social Planner Wants to maximize the economic well being of everyone in society Measure society’s economic well being through:  the sum of consumer and producer surplus (total surplus) Consumer surplus is the benefit that buyers receive from participating in the market Value to buyers - Amount paid by buyers Producer surplus is the benefit that sellers receive Amount received by sellers - cost to sellers Total surplus= value to buyers- cost to sellers Total surplus in a market is the total value to buyers of the goods (measured by their  willingness to pay) minus the total cost to sellers of providing those goods Efficiency- the property of a resource allocation of maximizing the total surplus received  by all members of society If not efficient: some of the potential gains from trade among buyers and sellers are not  being realized Ex: good not being produced with lowest cost Ex: good not being consumed by the buyers who value it most highly Equality- the property of distributing economic prosperity uniformly among the members  of society Evaluating the Market Equilibrium Consumer surplus: the area above the price and under the demand curve Producer surplus: the area below the price and above the supply curve
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Total surplus= the total area between the supply and demand curves up to the point of  equilibrium 3 insights about market outcomes: free markets allocate the supply of goods to the buyers who value them most highly, as  measured by their willingness to pay Free markets allocate the demand for goods to the sellers who can produce them at the  least cost Free markets produce the quantity of goods that maximizes the sum of consumer and  producer surplus The market outcome makes the sum of consumer and producer surplus as large as it  can be (the equilibrium outcome is an efficient allocation of resources
Background image of page 2
20:20 Oligopoly- a market structure in which  only a few sellers  offer similar or identical  products Interdependent Game Theory- the study of how people behave in strategic situations A situation in which a person, when choosing among alternative courses of action, must  consider how others might respond to the action he takes Its profits depend on how much a firm produces and also how much other firms produce  Markets with only a few sellers A Duopoly Example An oligopoly with only two members Competition, Monopolies, and Cartels
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/18/2012 for the course ECON 201 taught by Professor C.liedholm during the Summer '07 term at Michigan State University.

Page1 / 32

Exam 3 reading notes - 20:20 Market Efficiency Consumer...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online