Econ 101 September 26

Econ 101 September 26 - o Excess of total benefit over...

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Econ 101 September 26, 2011 Optimization Principle – maximize payoff Find the optimal level, x, of an action or good Total payoff(x) =total benefit(x) – total cost(x) Marginal analysis – optimal amount of x (mb marginal benefit mc marginal cost Examine current situation, say we are at x Consider an increase to x + deltax Suppose MB decreases and MC increases as x increases Keeping increasing x until the mb = mc Buyer – individual behavior Marginal benefit – additional benefit from another nit o Measured by maximum price willing to pay o Decreases as consumption increases Optimal buying: BP = P MBP greater than or equal to P ---- buy ore Mb < p --- don’t buy pay less Demand reflects marginal benefits Consumer surplus Good fortune from participating in the market o Excess of total benefit over total expenditure o Marginal benefit minus price for all units Good fortune from participating in the market
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Unformatted text preview: o Excess of total benefit over total expenditure o Marginal benefit minus price for all units Seller individual behavior Marginal cost- additional cost of producing another unit o Larger as more is sold Optimal selling P = MC P greater than mc sellmore P less than MC dont sell Market supply Supply reflects marginal costs o Examine individual sellers supply o Quantity supplied is sum of individual supplies Good fortune from participating in the market Excess of total revenue over variable cost Price minus marginal cost for all units Pareto efficient cannot make someone better off without making someone else worse off at the same time Allocative efficiency MB = MC Production matches tastes Distributive fficency MB = fr all buyers No improvement with redistribution Productive efficiency MB- for all sellers Cannot produce at lower cost...
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This note was uploaded on 02/14/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Econ 101 September 26 - o Excess of total benefit over...

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